Underestimating the difficulty of obtaining additional funds for real estate projects, especially rehabilitation projects, is a common mistake for new investors. It’s essential that you get all of your financial ducks in a row before beginning any remodeling project if you want to be sure that you will be able to finish the project on time and profit from it (whether it’s through rental income or by reselling it).

Why worry about getting all of the money beforehand? There are three main reasons to do so: first-position liens are much easier to obtain than second- or third-position ones; title companies don’t offer title insurance for projects that are already under construction; and the reputation of your project, company, or yourself may suffer from negative stigma if the project runs out of funds prematurely. The bottom line is that once you’ve begun your project, it’s increasingly difficult to obtain additional financing from institutional or private lenders, alike.

So, how can you avoid funding problems for your rehab projects? First, get detailed estimates from your contractor with itemized lists of all the rehab costs, and assume that you’ll probably need a bit more than that to actually complete the project. Second, find a lender who can loan you the amount you need (including towards the purchase price of the property if you don’t already own it). Hard money or private capital loans are often helpful for commercial rehab projects, especially for distressed properties that banks either can’t or won’t lend on. Hard money lenders have a reputation for low LTV (loan-to-value) rates and high interest, but what often goes unmentioned is that these lenders have the freedom to base their loan amounts on a “value-added” or “after-repairs” appraisal value rather than the current market value or the purchase price. This is where the detailed estimates from your contractor are once again important because they help you demonstrate the value that you will add to the property to your lender and that you will be able to do so with the additional funds that they give you.

If you have a property in need of a facelift or complete overhaul, contact Montegra at 303-377-4181 for more information about our private capital loan programs.