3 Common Pitfalls of Rehab Loans and How to Avoid Them

Learn how to research the market before getting rehab loans.

If you do a little searching online to understand rehab loans, chances are you’ll come across one of the self-appointed “real estate gurus.” These people have flashy websites and make a lot of promises about the piles of money you can make doing real estate investing. The problem is that they are often short on details for how to actually make the money. Real estate investing carries a certain amount of risk. That means that you can make more money at it than just putting your money in a savings account. But it also means you have to have a plan to make the dream a reality. Here are a few of the most common mistakes people make when they start out, as well as advice on how to avoid them.

1. Not having a plan for a property is one of the most common mistakes people make when they get a hard money loan. And you need a plan before you’ve bought something. Are you interested in rehab loans for a fix and flip? Do you want to rent it out? Or offer a lease-to-buy agreement to a buyer? Settle on an investment model, then look for a property that works well with it.

Before You Get a Hard Money Loan, Make Sure to Do Your Homework

2. Some people decide to get into real estate investing full of “get rich quick” schemes. But any experienced investor will tell you it’s not so simple. To make money, you have to do a lot of research into the trends in your particular market. Make friends with more experienced investors. Talk to real estate agents who work with your type of property. The National Real Estate Investors Association has chapters all over the country. Find your local group, go to meetings, and ask tons of questions. This will prepare you to make smart business decisions when you begin investing.

3. Another way people lose out in real estate investing is by not having a Plan B (and C and even D). Despite doing a lot of research and being careful about where you buy, you might hit an unexpected down time in your market. Do you know what you will do if your original plan doesn’t work? You don’t want to be paying on rehab loans for months, waiting for the market to magically work in your favor. Consider whether it might make sense to rent out your property or offer it to a wholesaler.

If you have questions about how a rehab loan works or want to talk over investment plans, call LendingXpress! We’re happy to discuss market trends and make sure you get the right loan for your deals.