As a real estate investor, you have the option of buying an existing dwelling with the intent of a major remodel or you might find a vacant lot in an ideal location and invest in new construction. You really have your choice and although the evaluation process will be a bit different when comparing the construction vs. rehabtwo the bottom line is still how much profit can you make when you sell?

For an existing property you consider the purchase price, cost of repairs and selling expense, including commissions, fees and interest on a note. For new construction, you compare similar structures in the area with how much it will cost to buy the lot and build the new home from the ground up. And if you’re financing the transaction, while you’ll be remodeling and building, there is a major difference between how your construction lender and your builder will operate.

When buying an existing property that definitely needs a little TLC, your financing package will include the purchase price plus rehabilitation costs less your down payment. Once you’ve completed the rehab, you will either have a permanent mortgage built into the financing, which is hard to find or get a short term loan that will pay for the acquisition and rehab. Once the work is completed, the existing lender wants to be paid back.

You may also consider financing the property with a conventional loan and obtaining an equity second or home improvement loan to make the needed repairs. These types of loan are generally for the long term and do not have to be paid off upon completion.

If you’re building a brand new home, your financing will be in the form of a construction loan which needs to be replaced at the end of the build. During the construction period, you’re actively seeking a buyer who will replace the construction loan with their own permanent mortgage. The builder gets paid when the construction loan is paid off and replaced by your buyer’s financing.