The success of a fix and flip or BRRRR project often hinges on the quality of the rehab. In this article, we’ll explore the differences between small and extensive rehabs, as well as the financing options available for each.
Small Rehabs for Investment Properties:
A small rehab involves minor repairs, upgrades, and cosmetic improvements to boost a property’s value and attract buyers. This type of rehab focuses on aesthetics, functionality, and general market appeal without significant structural changes.
Ideal property types for small rehabs include:
- Single-family homes
Upgrades in small rehabs typically focus on interior improvements like modernizing fixtures, flooring, and painting to attract buyers or renters.
What’s included in a small rehab?
The scope of a small rehab project can vary, but common improvements include:
- Cosmetic updates: Replacing outdated fixtures and hardware, upgrading lighting, installing new flooring, or refreshing landscaping.
- Kitchen and bathroom renovations: Upgrading countertops, cabinets, appliances, and fixtures to enhance overall appeal and value.
- Curb appeal improvements: Enhancing the property’s exterior by adding new siding, improving the entryway, upgrading landscaping, or replacing the front door.
- Minor repairs: Fixing plumbing leaks, electrical problems, or roof repairs to ensure the property meets code.
- Surface-level renovations: Refinishing hardwood floors, replacing outdated carpeting, and adding fresh paint to quickly update the property’s appearance.
Characteristics of Extensive Rehabs:
In contrast, an extensive rehab involves significant structural modifications, comprehensive repairs, and substantial upgrades. This type of rehab may require gutting the property and making significant changes.
Common characteristics of extensive rehab projects include:
- Structural modifications: Adding or removing walls, altering floor plans, or changing the building’s foundation.
- System upgrades: Updating electrical, plumbing, heating, ventilation, and air conditioning (HVAC) systems.
- Interior and exterior renovations: Replacing windows and doors, upgrading insulation, renovating kitchens and bathrooms, and adding fresh paint to the exterior.
- Permits and inspections: Extensive rehab projects often require permits to comply with building codes and regulations, leading to multiple inspections.
Using a Fix and Flip Loan for Rehab Costs:
A fix and flip loan is a popular financing option for covering rehab expenses. It’s a short-term loan that covers acquisition and renovation costs for investment properties.
How it works:
- Loan application: Investors apply for a fix and flip loan, providing property information, planned renovations, and their experience with similar projects.
- Property valuation: The lender evaluates the property’s value, considering its current condition and estimated after-repair value (ARV) to determine the loan amount.
- Loan approval and terms: Fix and flip loans typically have higher interest rates and shorter, more flexible terms than traditional real estate loans.
- Rehab funding: Once approved, funds from the loan cover the property’s acquisition and rehab expenses, including materials, contractor fees, permits, and associated costs.
Rehabbing properties can significantly impact real estate investments, but understanding the differences between small and extensive rehabs is crucial. Small rehabs are perfect for quick aesthetic upgrades, while extensive rehabs are ideal for distressed properties needing a complete overhaul.
Finding the right financing is essential for success, and partnering with a reputable lending partner like INSIGNIA Financial Services can help investors unlock the full potential of their rehab projects. With competitive terms and industry expertise, INSIGNIA Financial Services offers fix and flip loans tailored to real estate investors’ unique needs. Don’t miss the opportunity to transform properties and maximize investment returns; explore our financing solutions for successful rehab projects today.