Should I use a rehab loan?

Question

I am currently trying to get the ball rolling with my real estate investing. I have looked at some houses and talked to some lenders. The consensus i keep coming up with is that a rehab loan is going to be the only way i can avoid hard money (the hard money lenders in my area charge far too much). The plan would be to do the work myself after receiving quotes from contractor. This would be my way of building equity to which i would rent and refinance.

Rick Albert · Answer

I used the FHA 203(k) loan for my property.  The problem is if you assign a contractor, you have to use that one for the project.  There are pros and cons to using this type of loan.  What my wife and I ended up doing is remodeling the house with an addition and converted the garage into an Accessory Dwelling Unit (permitted and rentalble guest house with separate address and electrical meter).  We are moving into the ADU and renting out the main house.  I am in the Los Angeles area.

There are downsides to this type of loan and happy to discuss it with you or anyone else on the forum.

Andy Taylor · Answer

My question is: Can you get a rehab loan? If so, I would lean that way over the hard money. It can be difficult to qualify with a bank, but in certain respects, a bank can be easier to deal with.

I guess both are tools in your tool box; there are times to use one over the other.

Meanwhile, be on the lookout for private money -- people who have $50k / $100k / $200k and up in a CD at the bank who could use a better return on their money.