getting a construction loan - Posted by anthony

Posted by cb on March 12, 2005 at 18:41:07:

Make sure you have everything in writing and the good thing is you have 150K in equity to play with.
I would do a equity share agreement with your friend and go from there, where you provide the financing and he does the rehab work and you split the profits 50/50 or whatever you agree on.

Find out how long you will need to float the construction loan through the lender so basically when will the rehab be done so the lender is paid and you are off the note. Who will be making the payments on the note…?? you may need to pull some equity to pay the note until such time the rehab work is done.

Good luck

getting a construction loan - Posted by anthony

Posted by anthony on March 12, 2005 at 17:19:02:

I am 24, living in chicago, I have a credit score of 630 and I am carrying a relatively high balance on the only credit card I have. A friend who is working on a rehab project that currently has 150’000 in equity, has found himself unable to get a construction loan. He has offered to put me on the title if I get the loan. (this is just in the thinking stage weve not yet determined the terms of this relationship) I have not yet taken my first step in real estate, mainly because of fear. I know that there could be some pitfalls but this seems to be an oppurtunity to get some decent cash. My friend is versed well in the all the trades to do the rehab himself and we both know plenty of subcontractors. I would appreciate any advice in relation to the legal and or finacial aspects of this situaiton.

Re: getting a construction loan - Posted by Daniel

Posted by Daniel on March 12, 2005 at 21:14:18:

Anthony, proceed with caution. First, we would need a bit more information before we can even recommend getting involve. The equity in the property doesn’t say much if we don’t know how much repairs would cost. If the estimated repairs and the equity are about the same, you may as well invest in brand new homes with no equity. Secondly, construction loan and rehab loan are not the same. With construction, you usually get the money to get the job done. With rahab, you may have to get the job done (in stages) before the lender would release money (in stages). In other words, the lender would give you money to start a construction, but you may need to have your own money to start a rehab. That leads to the 3rd question. Do you or your partner have the money to start the rehab? Here is a pitful you might want to avoid: if you get rehab loan based on a draw and your partner is listed as co-owner of the property, he may not be reimbursed for his labor cost. Find out what the lender may do. If your partner is not on the loan, he may be required to have contractor’s license before most lenders would honor his work and fees. Also, rehab loans are usually based on a percentage (65%-80%) of the ARV and not the total ARV. Again, all lenders are not the same. As I said, proceed with caution.