Rehabbing houses; It this correct? Finance question.

Financing, Hard Money Lenders, Private Money
1

From what I understand, a rehabber gets a Hard Money Loan for the price of the property and the price of the repair costs, then when he sells the property he pays back the Hard Money Loaner and the difference is his profit, correct?

  • JCL
2

Yes. But you have to take into account the difference is minus 6% real estate agent commissions, 2% sellers contribution to closing costs, 30% income tax, and 15% social security tax.

So if you buy a house for $80k and spend $20k fixing it up including holding costs and financing costs to the HML. You have a house with $100k in it. You sell it for $120k. That $20k difference will be minus Commission $7.2k, Closing $2.4k, Tax $6k, SS $3k so you will profit a WHOPPING $3,400.