Not every real estate investor has the cash on hand to purchase a home and carry on fixing it up out of pocket. In reality most investors take out a special investor rehab loan to purchase homes and carry on with house renovating. These loans are usually short term, with high interest and get paid back to the lender after the house is sold.

What is an Investor Rehab Loan?

Investor rehab loans are short term cash money loans that real estate investors take out with private lenders. These loans are used for just about everything related to fixing up a property like;

• Purchasing a property and remodeling it before moving in,

• Fixing up a house you already own,

• Building your own home,

• House renovating like adding additions to your home,

• Remodeling a room in the house like kitchen or bathroom and

• Remodeling a property and selling it.

The last bulleted item on this list is primarily what a real estate investor will be using their investor rehab loan for. A large enough loan will allow you to both purchase the home in cash and remodel it. This cuts back on the time spent with each property since loans with private lenders usually get approved and cleared very quickly. The average private lender can release funds within as little as 72 hours while a bank or mortgage company will take up to three months. That’s just too much time to spend on each rehabbing project!

Who does Investor Rehab Loans?

Private investors are the most likely people to give out rehab loans for renovating houses. These investors are usually a group of people who have decided to pool their money for the purpose of lending out to other investors and small businesses for their use. A single real estate investor who has been in real estate long enough to build up a large amount of capital can also branch out into private lending by giving other real estate investors loans for their projects.

It’s relatively easy to find private groups to make these investor rehab loans to you. You’ll just need to look around and of course perform searches online for ‘Private Lenders’ and you can also look on Real Estate Investor.com for private lenders looking to invest their money in new projects.

How to Qualify for Investor Rehab Loan?

Qualifying for a private loan like the Investor Rehab Loan is a little different from qualifying for a loan from the bank. Banks want their loans to go to people with great credit, a regular job and some money saved up to help cover part of the investment. If you go to a bank for your Investor Rehab Loan they’ll want you to have a credit score in the high 600s, plus six months worth of principal and interest payments saved up, in addition to the cash down payment which will range from 10% to 40% of the purchase price/house renovating cost of the project.

Private lenders will look at your business plan or the rehab property you plan on renovating. They’ll want to know how much the after repaired value (ARV) of the property is going to be, how much you will be paying for the property now and how much in repairs you intend to put into the property. They’ll also want the current market values for other similar homes in the area. A private lender should be able to give you a loan for as much as the full 100% estimated cost of the total project if you get approved for it. You can also just take out a smaller loan to cover incidental costs and unexpected costs that pop up during your project.

You see, it matters more to the private lender that a deal looks good and profitable, rather than knowing the lender’s past history.

What’s the Cost to Me?

Interest rates on private Investor Rehab Loans are higher than for loans from banks. This is simply because you are getting the loan from a private company that’s taking a greater risk. Think of the higher interest rate as an exchange for the chance to access the money more quickly than you would be able to with a bank.

The average interest rate for an Investor Rehab Loan varies between 12% and 18%, while the rate for bank loans can be between 8% and 15%. On top of this the lenders with ask for up front fees charged in terms of percentage points of the loan amount. However, a private lender can work these point based fees into the loan or defer them until the end of the loan when the amount is paid back in full plus interest.

You may or may not end up making interest payments during your loan period to the lender. It depends on the lender, the length of the loan period and how much you are borrowing.

When is it Paid Back?

An Investor Rehab Loan is typically very short term, up to six months or a year at most if you are having trouble selling the property. It’s generally about three months in length, as real estate rehabbers need to quickly start renovating houses and selling them to make a profit.

You’ll always want to pay back your loan when you’ve sold the property and received the cash. No point in keeping that loan any longer. So be sure to close out that loan with the lender after the property is sold to avoid additional interest and payments. The difference between the loan and the selling price of the property is your profits.

If you don’t have the funds to purchase a home on your own or the backing of a bank for the loan, an Investor Rehab Loan from private lenders is a good option. You’ll get funds to both purchase and start renovating houses. Plus, you’ll have access to the funds more quickly than with a bank.