Understanding the specifics of Rehab Loans can be tricky.  Especially considering parameters and products often change.  If you get nothing from this post as a Prospective Investor, Seasoned Investor, or Real Estate Agent, I'll sum up the key to any Rehab transaction in my opinion.  Find the worst house in a decent neighborhood, that's probably going to be the ideal transaction for most Rehab Products. 

I have a couple of different outlets for Rehab Loans.  For a more conventional and less pricey product, check out this information on the post I did on REHAB LOANS a little while back.

There's another type of Rehab Financing that is even more aggressive that the one I posted about above.  They will go down to a 620 score and if you find the right type of property at the right price and equity position, you can literally buy it with little to no money out of pocket!

I'll tell you right now, these loans are pricey.  I'll get into that aspect another time, on another post.  For now, I'll lay-out some information on this particular Rehab Loan, some of its parameters, & what it offers. 

About Rehabbing
There are many formulas used for the successful purchase of a rehab project. It's important to use one.  Of course the formula should be formulated around the specific parameters of the financing available.  The best financing outlet is going to be on a case by case basis.  There must always be a comfortable cushion between the purchase price and the selling price of investment property. This cushion price will help you achieve a successful investment, even if you have repair cost over-runs, or hold on to the property longer than you had anticipated. Remember, every day that the property is not sold or rented comes right off your bottom line. The interest, taxes, insurance, and utility bills compound each day. Buying the property at the right price will protect you from Murphy's Law.

Here's the Rehab Funding formula:

1.       Establish an after repair value for your property. (Get "area comps" and view each one. Pick out the property that has a street that is most similar to your house's street, and a structure that is closest to your house's structure, then compare the square footage, amount of bedrooms and bathrooms that are all listed on the "comps." This will help establish a real fair market value for your property).

2.       Multiply the ARV x .65 (This will give you 65% of the ARV).

3.       Establish a comprehensive and accurate list of repairs that you plan to do to the property, and estimate the costs for each repair. (This is important. If you are knowledgeable and experienced in doing repair work, you may not need help. If you are not experienced or skilled in this, find someone who is and have them draw up a plan. Even if it costs you a little money to get them out there, this could save you thousands of dollars).

4.       Subtract the cost of repairs from the 65% value of the ARV.

This should be the maximum price that you pay for the property! This is a conservative formula, and it usually works well. Remember, anyone can buy a property at close to fair market value, but with your costs and risks, you must do better!

"Rehabber Friendly" Terms

• Loan will be 100% of the sale price and 100% of the repair funds, not to exceed 65% of the ARV (after repair value).

• Turn around time on the loan: Within (2) weeks.

• Maximum length of the loan: (12) months.

• No pre-payment penalties

• Deferred payment plans available         

• Seller's concessions/assists may be used to finance the closing costs, as long as the loan does not exceed 65% ARV.

• If purchase and repairs costs are below 65% of ARV closing costs can be wrapped into the loan.

• Interest only payments (no principal) until the property is sold or refinanced.

            There is no penalty for early loan pre-payment.

• Repair funds go into an escrow account:  The escrowed repair funds are paid in draws as work is completed.

I'll be posting a Q&A about this particular product relatively soon, to give even more insight into another product available for specific rehabbing needs.  As always, if you have any questions, you can reach me via my contact information in that nifty little box below:-)