Right now most of my investors/clients are switching over to rehabs. I know it's not ideal... but the process has come a long way in the last decade or so.
Detroit is a "HotBed" for rehabs right now because they are trying to rehab the whole city and they are basically giving houses away. You can literally buy a house in Detroit for less than a grand. Now, that wouldn't be ideal because those are uninhabitable and need extensive rehab... but those are where you're going to find the biggest margins. We are currently working with a lender who specializes in rehabs and basically handles the process for you. Here's how it works...
The lender finds rehab properties themselves (they have a list you can choose from). Here's one that we did earlier this year... Lender bought a rehab property in Detroit for $24k. We bought it from the lender at $37k. The lender also loans on the money for the rehab. We put in $12k for the rehab over a 3 month period. Once rehab is done, the prop appraises for $110k. Now you can refi into a more conventional loan, pull out some of the equity if you'd like (we pulled out $20k), and put a renter in the rehab to make it "cash flow". Now, you can either play "landlord" and have a cashflow property for however long you want, or if you left enough equity in the rehab, flip it to another investor who would gladly scoop it up as a "cash flow property" WITH a renter!
A few details to keep in mind...
1) The original loan is HARD MONEY. so rates are going to be high. We were paying approx $900 a month on $37k. But it was only for a few months.
2) Investor must have good credit, but they are pretty loose with the lending on these properties.
3)Initial deposits are required for the properties. Once you have established a relationship with the lender, and shown some fortitude, they will lend without rechecking credit and deposits will be lessened.
4)If you don't want to be deeply involved on the project, the lender has contractors lined up for everything (it's in their best interest to have good contractors because it's their money).
5) All monies paid for rehab are paid up front by the investor and reimbursed as they are paid (just show proof with cancelled checks or receipts).
With the above example, once refi'd into a conventional loan our payments are at about $500 and it rents now for $750. Cash flow of $250 a month... with equity still in the property. It's not a lot, but do a few of these and you could potentially have a cash flow of $1000 a month for doing alomost nothing (once the rehabs are done). Also, in this case... I've never seen the house (except for pictures) :biggrin:
