It is hard enough to get a loan for a piece of real estate that is in good condition. When you are trying to get a loan on a piece of budget real estate, it can be even harder. Most of these properties are in need of repair. With many of these properties this can sometimes mean major repairs are needed. That is simply the nature of budget real estate which is why you can get it so cheap. A few of these may even require a rehab loan just to make them habitable. Rehab loans are tough to get on a new property. Some lenders are willing to give you the money for the property if the appraised value comes out to be more than the cost of the property. However, it is not so easy to get a loan for doing the necessary repairs. Often you stand a better chance of getting the financing you need to complete the job if you can collateralize the loan. This is just one of the methods used among investors who have found properties that are such a good deal they can’t afford to pass them up.
One way around this is to pay for the repairs yourself. Once the repairs are completed, have the property appraised again. If done properly, this should put you in a position to refinance the property and get your money back out of it, minus obviously the additional costs you made including improvements and the money you put towards home insurance (this is another plea for getting the best possible home insurance estimate, every dollar saved on a flip is important!). If you don’t have enough liquid funds to complete a total rehab you could use the same method with a twist. Begin by doing a partial rehab. Your goal here is to do those things that will create the most value in the property. Then, go out and get your new appraisal and refinance for the additional funds you need to finish the rehab.
Another method for getting a loan on a piece of budget real estate is to use private investors. There are many investors who are just waiting for a deal to come along. If you can show them the value in the property they may just decide to fund your investment. It helps to be prepared when approaching private investors. Some things they may want to see from you are the physical property, the appraised value of the property, statistics for the neighborhood that the property is located in, a list of the improvements you plan to make on the property, an estimate of how much those improvements will cost, an estimated time of completion of the job, and any number of other things that pertain to the investment. The benefit of finding a private investor is that if you include them in the proceeds, you may not be required to pay interest on the loan.
There are other non-traditional investors who lend money for budget real estate investments. They are known as hard money lenders and most of them are more than happy to lend money for just this type of property. The difference between them and private investors is that they usually invest their money as an interest bearing investment. As a general rule they are known to charge higher interest rates than a bank but the funds are also usually easier to obtain.
