There it is--a rundown home in decent neighborhood with a for-sale sign.  The grass looks as if it hasn’t been cut for years, and what might have been gorgeous gardens are now collections of overgrown bushes and wild flowers.  The home’s tan coat of paint is flaking off and vines cover boarded-up windows.  You start to get excited; this ugly home could be your first rehab investment.  And just imagine the sense of accomplishment you’ll feel when you turn something so derelict into a respectable, quaint home.  You won’t even have to hold it for very long, and you’ll make a fortune.

Even though I recognize the obvious appeal behind flipping houses, I’m still fascinated by the “flipping fever” that has consumed many real estate investors.  The problem is that most real estate investors don’t have a financial plan.  And a financial plan is crucial in the flipping business.  You need to know where you are, where you’re going, and how to move in that direction.  Several potential flippers get stuck and can’t manage that last step—movement.  They either can’t get started or can’t get finished.  The latter category may experience repairs running long either because of poor planning on the investor’s part or an incapable contractor.  And this can equal unplanned holding costs.

The first category of investors, those who can’t get started, find that they are unable to actually invest.  This could be for a number of reasons: fear, lack of knowledge, or trouble finding the right financing.  This last possibility, financing confusion, can be a particularly trying process.  Most seasoned investors have been burnt several times before learning the proper lending channels to approach.  While there are several options for real estate investors, there are usually loans available for your specific needs if you do your research.

For example, since this article is focused on rehab investing, let’s look at a loan designed for such investments--a speculative (spec) loan.  This type of loan disperses money based on the selling price of the property plus the additional funds needed to complete renovations—gut or cosmetic.  To oversimplify this entirely, let’s say your fixer-upper is only worth $140,000.  But once you put in $20,000 towards repairs and improvement, the home will be worth well over $180,000.  A spec loan will cover the initial buying price of $140,000, but it will also cover the $20,000 needed to fix the place up and turn a profit.

Make sense?  There are loans designed and tailored for different types of investing.  This is just one example, a good fit for the fixer upper.  Do your research and you’ll find the right type of loan for your needs, and consequently, the right mortgage lender.