For your first home, instead of buying that perfect home or the dream home in the nice neighborhood that you really want, buy the UGLIEST HOME that you can afford in the NICEST neighborhood. WHY?
Because you can really set yourself up for some major wealth creation, by buying a FIXER UPPER at a big discount. Then through sweat equity fixing up the home and bringing its value up to all the similar homes around in that neighborhood. You can have created major equity or wealth gains for yourself. You can tap into this equity and borrow money from it in the future to repeat the process and purchase more real estate investments just like this.
Lenders typically don’t like to loan on homes that are in too rough of condition. However, there are lenders that provide loans where they fund both the purchase price of the home and the cost of repair. This type of fixer-upper loan is commonly referred to as a “203K Loan”. The lender is going to require that all the major repairs are done by a licensed professional contractor.
The first major step would be to find a general contractor to bid on all the major repairs. Once you have your quotes you will present the quote from the contractor that you’d like to use to purchase the home. The lender will then order an appraisal on your behalf where the combined purchase price of the home and the cost of rehab is equal to or greater than the after-repair value or ARV of the home.
If the appraisal is good, then your loan is approved. As the contractor finishes major milestone repairs, they will be paid out in draws from the lender. Upon final completion of the rehab, you can then refinance out of the rehab loan into a fixed rate conventional 30 yr home loan. Doing this with the right property can jump-start your own personal net worth. Repeating it a few times will really grow your portfolio. If you should have any questions about this topic or how to get started, reach out to me to learn more.