1) Cash - either your cash or partner with an investor
2) Conventional Financing - depending how bad the home is, you may qualify for a conventional loan with 20-30% down. I rehabbed a duplex that had mold from a broken pipe, flooded room, needed to gut 4 bathrooms, etc, and I was able to obtain financing. The key is that utilities were off and the appraiser was only able to see things and both units had all tubs, toilets, a/c's, etc....so, they were not aware nothing worked. But I fixed everything and have been renting both sides for a couple years now.
3) Hard Money Loan
For information on hard money lenders, check out this webinar (it's about 55 minutes long):
As far as investing, I'm a believer in asset aquisition and long term equity gain rather than short term flips, but both have a purpose and goal. Check out my blogs on investing....
Hope this helps!
Darrell D. Drouillard
Home Team of America
16719 Huebner Rd., Bldg 4
San Antonio, Texas 78248
'Serving all Your Real Estate Needs'
But, here is how it generally works as far as I understand it: so long as you have 25 to 40% equity in the total end project â€“ what it will be appraised at after everything is done â€“ then you can borrow the other 60% â€“ albeit at a higher interest rate. But, once the final house is complete and the construction loan is closed out then you could get a conventional loan to replace it. Given the fact that interest rates are at 4% it still makes more sense to borrow the money rather than paying in cash. The deductibility is one thing but the interest rate at 4% versus, say, 6% is pretty substantial too. 20% of your mortgage payment will go to principal under the 4% model whereas 10% under the 6% model. Therefore, inevitably you will also gain in terms of natural appreciation of the market over time. And, if you were to finance everything in, say, 15 years the interest rates are near 3%.
You're banking on the fact that money borrowed is so cheap right now. Yes, you can put your money in the bank and get one or 2% interest at best. But, if you were to put everything into a safe capital bond money market account for example you can get a return of seven or 10%. That's according to my client who works at Merrill Lynch who does these things.
If you have a mortgage lender at bank ask them about those types of loans. Otherwise, mortgage brokers are an excellent at this. My mortgage broker is wonderful at this and I can refer you.