Rehabbing Houses With The Help Of Private Money
You probably never thought it was possible but you can actually rehab a house without spending a single cent from your pocket
. In reality, it is possible and it happens every day. Sometimes, banks dont even have anything to do with it. Thats because many investor opt to use private money when rehabbing houses. Thats the beauty of investing you can make profit using other peoples money.Private money, which is also known as hard money, is financing that comes from private individuals and not traditional lending institutions. These lenders have ready money and are looking for safer investment opportunities. They know that the business of fixing and flipping houses is flourishing, that is why they are willing to lend money to rehabbers.
However, as mentioned earlier, these are people who are looking for profit opportunities. Their main intention is to earn money or at least keep their investments safe. For this reason, they use higher interest rates. You will find hard money lenders using an 18% interest. Some lenders use the points system, wherein a point is equivalent to one percentage point of the loaned amount.
Rehabbers hardly care about these high interest rates and points. The idea is they are able to earn a huge amount of money without having to dig into their own savings account. Heres how it actually works.
If you borrow money from banks, youll get cash to buy the property. If that property is worth $50,000, thats all you will get. You will shoulder the repairs with your own money. Private money lenders, on the other hand, release loans that are often enough to cover the purchase and repair of the property you want to rehab. They will give you between 60% and 70% of the ARV (after repair value) of the property. The ARV is the estimated value of the property after you make some repairs and improvements. This amount is usually enough to cover all your expenses.
For example, you found a fixer upper home worth $50,000. You plan to spend $20,000 to raise its value to $100,000. That means your estimated total expenses is $70,000. If you avail of a private money loan and the lender agreed to a 70% ARV term, then you will get $70,000 from that lender. In this case, you will be able to fix and flip a property using hard money alone. Imagine this: you earn money without using your own capital. Thats the beauty of rehabbing houses with the help of private money.
Want to learn more about rehabbing? Go to rehab-real-estate.com today and watch informative videos.
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