Getting a traditional loan to finance fix and flip projects isn’t always the best or easiest route to take as an investor who specializes in these projects. Not only do you have to consider which properties will be approved under the scrutiny of underwriting guidelines for loans, you also have to consider the current quality of the home. This means that if the property is in disrepair, the bank may not see the potential that you do, disqualifying you from the loan procedure.
Not only that, but they also require a substantial contribution to be made out of pocket, and while all loans will require some form of down payment, there are better ways to leverage undervalued property to turn it for a profit. This is where rehab loans can help.
Rehab Loan? What Is That?
Plainly speaking, a rehab loan is a type of hard money loan meant for the purchase and renovation of property, though they can be used for other similar purposes as well. They are used by long term investors to refinance properties as well, and rehab loans enable you to borrow the money needed for your particular investment, as well as the funds needed to get the property back into tip-top shape.
It’s important to be responsible when considering rehab loans, as they aren’t meant to act as a long term solution. They are strictly a short term loan meant to acquire and renovate your investment properties. The terms for these loans can range from 6 to 18 months depending on your project needs, and you’ll want to have clear plans and back up plans for the property to present to your investors. When all your plans are solid and your presentation is clear, you can expect the approval process to go more quickly than a traditional loan would, and you won’t have to worry about the current quality of the property effecting your approval for the rehab loan.