Investors who find their first rehabilitation project will sometimes be surprised that financing such a particular property isn’t exactly as advertised. Investors can spend a significant amount of time finding and vetting a potential project such as acquisition costs and how much will be needed for repairs.turnkey real estate companies use private investors

Even if the project makes complete sense and you have it all spelled out, the bank may not be as accommodating as their advertisements say they are. The fact is that in many cases the property doesn’t fit the bank’s portfolio or is in such poor shape the bank won’t make the loan because their collateral’s value isn’t there until the property is fully rehabilitated. That means going private for funds and going back to the bank later.

Private funds are those from individuals or group of individuals who pool their resources together, loan the funds to a real estate investor who will acquire and rehab a property. Once the property has been fully restored, the investor can go to the bank for a permanent mortgage or sell the home to buyers who have financing already lined up.

Terms for private financing are usually only for as long as it will reasonably take to turn the project and refinance the private note with a traditional mortgage or sell the property to someone else outright. Double digit interest rates are common in the private financing world and there will be additional fees as well that a conventional lender won’t charge. Private notes also require a sizable down payment from the investor ranging anywhere from 30 to 50 percent or more, depending upon the nature of the project. Turnkey real estate investment firms will typically have their own cadre of private investors who are willing to finance such projects or real estate investors can seek their own sources of funds. If you’re an investor and have yet to need funds from a private investor, just wait, you will someday.