You pay for the house and the rehab now. The sale or the refinance comes months later.

A business, not a home purchase

This page is for investors operating as a business: you buy property to renovate and sell, or to rent to others. It is not for buying a house to live in. Under federal Truth in Lending rules, credit to acquire, improve or maintain rental property that is not owner-occupied is deemed to be for business purposes^[3], and credit primarily for a business purpose is exempt from Regulation Z^[4].

That matters to you. Business-purpose loans do not come with the consumer disclosures attached to a home mortgage, so read every document and ask every question before you sign.

Small investors are most of the rental market. About 70 percent of U.S. rental properties are owned by individual investors, and about 86 percent of rental properties have only one rental unit^[5].

Where the money goes on a rehab

• Purchase price, down payment and closing costs
• Rehab budget: contractor, materials, permits and inspections
• Holding costs: property taxes, insurance, utilities and interest, every month until exit
• A contingency for what you find behind the walls
• Exit costs: agent commission and closing costs on a sale, or appraisal and closing costs on a refinance

Rehab money is commonly released in draws. A stage of work is finished, someone checks it, and the next portion is released. You often front the first stage yourself, and a slow inspection can hold up your next payment to the contractor.

If you keep the property as a rental, the IRS treats repairs and improvements differently. Repair and maintenance costs may be deducted, but improvements must be capitalized and recovered through depreciation^[6]. Talk to your tax preparer before you build a rehab budget around a deduction.

Your exit shapes the financing

If you plan to sell to a buyer using an FHA-insured mortgage, know HUD's resale rules. A property resold within 90 days of the seller's acquisition is not eligible for an FHA-insured mortgage. A resale between 91 and 180 days at a price 100 percent over the purchase price requires an appraisal from another appraiser^[2]. Some sales are exempt, including sales of inherited property^[2].

If you plan to rent and refinance, the refinance will rest on the finished property and its rent. Plan the rehab around what that lender will need to see.

SBA 504 loans cannot be used for speculation or investment in rental real estate^[7], so SBA programs are usually not the tool for flips or rentals.

What ROK will want to see from an investor

ROK's residential investment property page says experience with prior successful residential investment real estate projects is a requirement. It also sets a minimum property value of $250,000, regardless of property type^[1]. ROK's partner application lists at least 4 months in business and $10,000 or more in monthly gross sales, which is $120,000 a year^[8].

• A track record: address, purchase price, rehab spend, and sale price or rent, with dates, for past projects
• The purchase contract for the new property
• A rehab scope and budget, with contractor bids
• Your exit plan: comparable sales, or expected rent and your refinance plan
• Business bank statements and entity documents if you buy through an LLC
• Proof of funds for your share of the purchase and the rehab
• For commercial or mixed-use property: appraisals, environmental reports, title searches and zoning permits^[9]

These are what lenders commonly review. ROK and its lenders decide what they need for your request and whether to fund it.

Financing that fits this kind of gap

Which one fits your business, if any, is a conversation to have with ROK’s advisor once they have seen your file. These are the types that usually come up.

• Investment property loansBuying and renovating residential property you will sell or rent. ROK describes these loans as used to buy property that will produce income, typically renovated for rental income^[1].How it works
• Commercial real estate financingMulti-family, mixed-use, retail or other income-producing property. ROK describes commercial real estate financing as funding for properties used to generate income^[9].How it works
• Business line of creditHolding costs, a rehab overrun or a deposit on the next deal, drawn only when needed. Interest applies only to what you draw^[10].How it works