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How Do You Fund Real Estate Rehab Projects?

Updated: Sep 13, 2021

Home renovation as an investment strategy requires substantial financing apart from well-defined and concrete planning. Such investment is susceptible to a high workload demand; thus, obtaining a good funding source must be utilized. Whether or not you are a new investor or flipper, setting the stage to have sufficient capital will help you get off the hook.


Funding Source

When financing real estate rehab projects, there are multiple options investors could choose from. However, eventually, what works best for their projects matters.


What makes up these options?

Primarily, investors are served with two funding options they can consider: outside financing or personal financing. While most of the investors prefer outside financing, some opt to go for the latter one.


Outside Financing

What is outside financing? Outside financing is a funding source where investors obtain needed funds from private lenders to cover rehab costs. This type of financing is commonly referred to as "Hard Money Rehab Loans" -- these are loans provided by private lenders. To be qualified for this type of loan, you must not take advantage of the process: get a borrower pre-approval, qualify the property, and other steps in-between. Most investors opt for outside financing because they want to secure their assets and most importantly, as compared to banks and mortgage companies, getting approval is a lot faster as it doesn't look into your credit score regardless if it is less satisfactory.


Personal Financing

This type of financing works for those who have sufficient capital and assets to cover all the costs from purchasing distressed properties to renovation. Such financing is a good option for it won't cost you approval or application process, no interest, no closing fees, and other fees that apply.


Apart from these two funding sources, investors can also consider loan applications from the government, mortgage companies, banks, and even credit cards to support rehab finances.


Summary

Regardless of what financing strategy investors prefer as long as it suffices the needs of the projects they are currently working on, being on top of the game is what matters. Finding the best fit will cover up potential project pitfalls, assessing every plan's detail from materials to capital, and from planning to execution. After all, a successful home renovation is a product of wise and effective decision-making.


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