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Where Can I Borrow Money For My Rehab Deals?
Joe: Hey, it’s Joe. This next question is from Ann from Nashville, Tennessee. “I found two unique niche specific interests that require funding and perhaps strategic partnerships. Are there lending sources or support for the rehab and community of houses? There are a number of houses that need to be rehabbed, including some expansion. There are several vacant lots that’ll need to be filled. The goal is the redevelopment expansion of two hundred houses in an historic town that has complete support from the Mayor and the Commissioners. Historic is the key word. These are river view houses…” it gives a little bit of information about the area.
Joe: “Are there lending sources or support for building a collection of Air B&B, corporate rental properties, those types of things, and rehabs?”
Joe: Yes. If you’re working with the Mayor, they can work with you. And they can help you with that process. If you’re working with a government agency that has funds, those are the first people that I’d be talking to. If you’re buying from the government, then you’re probably going to need the funds yourself. And you’re either going to use your own cash or you’re going to find someone with private money who’s going to work with you. I would stay away from hard money lenders. They typically charge interest rates that are higher than I think are worth doing. And I think there are better ways to invest than working with hard money lenders or working with banks. Both of them have interest rates that don’t make sense and if they’re interest rates aren’t high, their fees are.
Joe: You go out and get a regular Fannie Mae loan, you’re going to be paying quite a few dollars in fees on a deal so, that you’re flipping, and it doesn’t make sense. Plus, there’s going to be a limit on how many Fannie Mae loans you can actually get. They limit you to ten properties and you won’t be able to get more loans if you go with conventional loans. If you’re using hard money they might be wiling to give you more, but it’s based on your relationships with the hard money lender. And hard money lenders are pretty few and far between and they only want to work with people that are experienced and know what they’re doing and have flipped properties before and they see that they have a track record. I doubt that you’re going to find a hard money lender that’s going to work with you otherwise.
Joe: I would say you know, if you’ve got experience and you’ve done rehabs before, taking on a community development project like this could make a lot of sense because they Mayor probably has the deed, or the City has the deed to all those properties, especially properties that are in maybe low income areas or blue collar areas that are in maybe in terrible condition, that need to be completely revitalized. And I’ve done a lot of that revitalization work myself. But I’ve done it with cash. I’ve done it with my own cash where we’d go in an we’d buy a property, we would buy it for you know, sometimes thirty cents on the dollar, twenty cents on the dollar. We’d put some cash into the property and we’d still have a chunk of money equity in that property. We’d put a tenant in the property, or we would sell it as a, you know, as a rehabbed, end, to an end user.
Joe: But I found that, for me, it was better to sell it to other investors. And I was able to sell them as turnkey packages because what we did is, we’d fix them up, we’d put a tenant in there, we’d manage those properties and I’d be able to keep those properties as long as I wanted to and I’d be making income on those properties immediately, plus I’d have a chunk of equity in those properties and then I’d put them on the market to my other investor friends or I have a big investor list that you happen to be on. And I’d sell it to that group as well as turnkey properties. And they would already be in place, they’d have good returns on their money because a lot of these were lower income properties and we’d have managers in place and have everything ready to go plus they’d have already been rehabbed.
Joe: And that made a lot of sense and we were able to sell those properties. I was also able to do it inside my Roth IRA which is where I funneled most of my capital and I, you only can buy properties that are rental properties. You can’t just flip properties in a Roth IRA like that. So, that’s one of the reasons we did that and then we kept those properties for months or years, and then we’d turn around and sell some of them, we’d keep some of them, depending on the property and the location and the property manager that we were working with and the state or the city that we happened to be in.
Joe: So, my recommendation to you is either get a friend who’s got some money, have some money yourself and know what the heck you’re doing. Don’t do this unless you do because you’ll probably lose money by doing rehabs if you’re not working with contractors properly, if all that stuff falls apart. That’s when you lose money and that’s the biggest challenges that we had to overcome before we started making money as well. Fortunately, before I started spending my cash I had to earn that cash. So if you earn the cash and then start spending it, then you can start growing that cash and that’s when it starts getting attractive. If you’ve earned that cash by doing deals that didn’t require cash, you’re going to have a much better idea on how to use that cash effectively and keep it safe.
Joe: The worst thing that happens is you’ll lose your capital. Don’t lose your capital. Do it in only safe deals and then if there’s something that’s going to be risky, do it with zero down deals and zero down structures instead.
Joe: All right. Hope that answers the question.