Q: What’s the benefit of borrowing money to acquire and rehab properties?
A: There are circumstances where high net worth individuals may choose not to borrow money for projects. Yet, for most investors, it is crucial to stay liquid through unforeseen opportunities and problems. Borrowing money allows for greater flexibility in taking on projects. You might find yourself in the middle of one project when another good opportunity presents itself. Financing provides individuals the option of completing multiple projects. Going over budget is another problem that rehab investors might face. Different loan structures allow for extra funding (at a price) in the event that the investor needs to spend more money on a project. If leveraging your resources does not leave potential for multiplying your resources then you should not take out a loan.
Q: What’s the Chicago rehab market like and what kind of profit should a rehabber expect to make?
A: The supply of distressed properties in Chicago is steady. This means that the opportunity to acquire and rehab properties is strong. Renovo customers have made an average of $40,000 in profit per project which translates to a multiple of 1.4x. Rehab projects typically last around 6 months and require an investment of ~20%.
Q: What should a borrower look for in the right lender?
A: Look for a lender that has funded lots of projects and can execute draws quickly. You do not want to work with a lender that is not experienced in real estate investment lending. Whether you’re an amateur or experienced rehab investor, it’s good to have side-by-side due diligence on every project. This ensures the greatest possibility of success. The ability to fund multiple projects is also important and small lenders might not be able to fund many projects at once. Predictability is another characteristic that investors should look for in lenders. You do not want to end up with a lender who alters rates and programs arbitrarily. Establishing a long term borrower-lender relationship with reliable rates and services is the ultimate goal.
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