First, let's clear the air here. I fully understand "Fixer Upper" and other similar shows are for entertainment purposes and do not fully show the details of a REI business.
Now that that's out of the way, how would you think similar companies are structuring these deals? They have a home buyer that can spend up to $250k (or some number), but are purchasing homes for say $150k and putting $100k of repairs into them. How would this type of deal work in the real world?
My inexperienced thoughts on the subject - Buyer is obtaining a preapproval letter from a bank. "Fixer Upper Inc" is then finding a property with an ARV that meets or exceeds that value. They purchase through their own means (cash, private investor, HML) and perform the rehab. After rehab is done, they then have the home appraised and hope it appraises for at or above the ARV estimate and buyer can then purchase the home for the aforementioned total budget ($250k in this case) through traditional financing (mortgage).
Is this what you'd expect is happening on these deals?
@Ben Morrison in this scenario the buyer is getting a loan from a traditional lender to buy the house including improvement cost. At the end of the construction it converts to a permanent mortgage. Sometimes the buyer may use cash but these type of loans are common for owner occupied properties.
Thanks for the feedback. I just always wondered how they would finance those projects, that makes sense though.
Probably a 203k loan which covers purchase and rehab, mainly possible if they plan to live in. not so much for investors.