Rehab Loans – Why Working With The Right Lender Is Important

Are your applications for rehab loans being constantly rejected by the lenders? If yes, don’t worry. Almost 90% of real estate investors out there have a hard time getting their rehab loan applications approved by the lenders. I know so because I was one of them too.

It was extremely frustrating to go from one lender to another asking for rehab financing on the properties that I want to fix and flip. I’d apply for a loan and get it rejected. Through experimentation, I understood how rehab loan lenders play the real estate game.

This understanding allowed me to work with the right lenders that are going to help me and kick out the lenders that won’t help me. The key to success in real estate is to get that understanding.

If you can get that understanding, you can fix and flip multiple properties at once. You can use that money you get to buy properties that you can give out for rent and become a land lord yourself. Yep, it’s possible for you or anyone to succeed with real estate investing. But you have to understand the process and how the game works. The game is always against the average investor…

When it comes to rehab loan lenders, there are actually two different types of lenders:

1. Conventional lenders – Conventional lenders are the banks and financial institutions that provide loans for retail properties. The biggest mistake 90% of real estate investors make is to request rehab loans from these lenders. Some private conventional lenders brand themselves as hard money lenders and don’t tell you everything that you need to know about their process.

These lenders don’t give loans to properties that need fix ups because it’s a liability for them. If they do fund the loan for the repair work, they will take up secondary ownership of the property. The primary ownership of the property will go the lender who funded for purchase of the property or the true owner of the property.

Therefore if something like a foreclosure happens on the property, it’s the primary owner that is guaranteed a return on his investment. The secondary owner has no guarantees whatsoever. He will only get the money after the primary owner gets 100% return on his investment.

Even if these lenders play the primary role in the property, they still don’t provide loans to properties that need fix up because of the following reasons:

– They don’t have the resources or skills to fix up properties. Sure, they have money but they really aren’t into real estate investing.

– Some lenders fix certain properties. It’s done only to get rid of the property even at a loss.

– There’s no guarantee of a return on that property.

– There’s a big chance that they are only managing the loan and have already sold the loan related documents to a bunch of investors in the Wall Street. The Wall Street requires a property to meet a lot of regulations before a loan can be successfully funded.

2. Private Rehab Hard Money Lenders – These lenders consist of a group of private investors who pool their money together for various rehab loans given out to real estate investors. These lenders have a real estate background which allows them to fix up a property and resell it even if the borrower was to fail.

These are the lenders that you need to be working with for your rehab loans. They analyze properties and the market where they are lending which allows them to provide loans for properties that need fix up. They understand the risks involved and can bring a profit out of the property investment even if you failed when it comes to repayments.

Their biggest advantage is that their entire decision making process is private and they keep their own paper. They don’t sell documents to other investors like the Wall Street. They assume primary ownership of property and give rehab loans to investors that require financing for purchase of the property as well as the repairs.

By Suzana