Savvy investors choose real estate as a means of diversification, and they continue to diversify within their portfolios as they invest in multi-family, commercial, or other classes of real estate assets. But no matter where they end up, the vast majority of investors perform rehabs on single-family homes.
The main reason for this is that the properties are attainable and the ability to generate a profit is a direct result of your effort and sweat equity, not the capital you can bring to the table. If you can get your hands on a distressed asset, you can implement your vision to renovate it. Ultimately, you can profit by selling the property or renting it to tenants who find value in the work you put in.
Financing the rehab of distressed property is one of the primary reasons why people seek out hard money loans. The ability to fund the entire repair gives investors the ability to realize their vision and take their project across the finish line. When looking to use hard money loans for rehab projects, these are the primary considerations that investors should keep in mind.
Hard Money Rehab Loans Finance 100% of Repairs
Even the most committed and capable rehabbers are going to incur expenses in the renovation. Flooring, drywall, paint, carpet, cabinetry, and everything in between all cost money. And that's assuming you don't need anything more substantial like new HVAC, electrical, or a roof. The more complex the renovation, the more contractors you're going to need to involve and expenses can really begin to stack up. When you're just getting started seeing the sticker price on rehab can be daunting, even if you know it is going to generate a strong return on investment. How are you going to find the capital to get started?
The Hard Money Co. lends up to 65% of the after-repair value of a property as a whole. We do this to ensure that investors maintain skin in the game and that the deal has a real opportunity to be profitable when all is said and done. But so long as the borrower stays below this threshold, they can finance 100% of their repairs. This means that every dollar of labor that goes into a property can be recouped and the investor can execute their vision in its entirety. Unlike with other hard money lenders or traditional institutions, you won't have to make trade-offs or cut corners on your rehab. This maximizes the likelihood that you'll be able to sell, rent, or refinance the asset when your work is complete.
A Detailed Scope of Work is Important
Prior to funding the loan, The Hard Money Co. requires that our borrowers complete a comprehensive scope of work. This isn't a complicated process, but it does have some substantial benefits.
The most important is that it defines your vision for the property's rehab. By putting exactly what you intend to do in writing, it becomes dramatically easier to visualize the end result. This has the added benefit of forcing prioritization into the project. Many investors see the work before them as one daunting, overwhelming project. But breaking down the steps into easily achievable steps makes the end result attainable.
This also gives confidence to us at The Hard Money Co. If we know that our investor has a vision that they can easily communicate to us, it makes it easier for us to perform our underwriting process and ultimately approve our loan. In the instances where potential borrowers can't tell us what they plan to do to a home or are unable to create a realistic budget, it raises red flags about their ability to complete the project.
Reimbursements for Rehab Loans Are Nearly Instantaneous
The Hard Money Co. has dedicated staff whose sole responsibility is processing reimbursements for completed work. This means that funds will hit your bank account within 48 hours of your repair draw submission, and will often be considerably faster depending on the timing of your request. A successful project is built on a foundation of trust, and knowing that you can pay your contractors as soon as the work is done is essential in maintaining momentum.
Our process is simple. As soon as a line item on your scope of work is complete we'll either request pictures of the property or send a member of The Hard Money Co. team to verify the work has been completed. When we're able to do so, we'll initiate an ACH payment and funds will be transferred to your account. It's important to note that we will only issue reimbursements for line items that are entirely finished. If you've listed a kitchen renovation as one of your line items, but are missing the granite countertops, we won't be able to issue funds for repayment. This obstacle is easily overcome by drafting a more detailed scope of work. By breaking out your kitchen renovation into separate line items for countertops, cabinets, and flooring, you can recoup costs as each of those items is completed.
Rehab Loans Provide Flexibility to Outsource Work
Hard money rehab loans are perfect for investors of all skill levels. A lot of beginning investors feel like they want to tackle every project themselves. This allows them to maximize their profit and control over the property. Other, more experienced, investors know where their strengths lie and outsource the entirety of the labor to skilled contractors. Though this may end up costing more, they make this trade-off to ensure that the work is completed on time and to an acceptable quality. The premium they pay is well worth their mitigated risk.
There is no right answer. Choosing the strategy that best fits your circumstances is the most important thing and The Hard Money Co. gives you the ability to do that. When you're putting together your application or are preparing to close on your loan, have this discussion with your originator. They've worked with countless investors and can give you advice based on your experience level and the details of your particular investment.
The rehab is the driving engine for success in real estate investing. At The Hard Money Co., we want to make it as easy as possible for you. If you have any additional questions about how our process works, we're just a quick conversation away from putting you on the right path.