Over the course of the past few years, one of the benefits of our otherwise-ravaged economy has been new initiatives from the federal government to provide incentives for consumers of various types. It’s like a psychological stimulus plan. The government is doing everything it can to hold consumers by the hand and say, “It’s OK, everything’s going to be fine and back to normal in no time. Here’s some money to spend, and we’ll go ahead and get rid of these taxes. Just go out and spend some cash!”. Obviously, it’s not been quite that simple, but some of the government’s new initiatives do in fact seem to be overt attempts to stimulate consumption.
Many investors (both seasoned and amateur) as well as start-up homeowners seek to make the most of their money by purchasing property under the market value. Unless you strike gold and happen to find the one seller on earth who doesn’t care about money, getting a home for less-than-market-value is most likely going to require making sacrifices in terms of quality, and this inevitably means sinking additional funds into repairs, replacements, and improvements. Due to this additional, post-contractual expense associated with rehab properties, many buyers fail to properly plan for this process, and end up with a defaulted mortgage and a failed investment attempt. For that reason, it is essential to research thoroughly what will be required to bring a property to market value, and factor that into both your profit margin and your mortgage considerations.
The federal government’s new way to keep us pumping what little money we have into the economy (especially banks and other lenders) is called the 203k Rehab Loan. This is a loan program through which home buyers can apply for funding from the federal government to purchase and repair the property. The catch? The property must be your primary residence. It’s not all bad though, you merely have to reside there for any 2 years (not necessarily consecutive) during a period of 5 years. This means you can’t simply use the government’s money to buy up and repair investment properties and become the next American billionaire. However, there is room to navigate within the rules, and many investors use the 203k Rehab Loan as a means of doing just that—meeting minimum residence requirements in order to maximize profit opportunities.
The 203k is largely ignorant of credit history. It is designed to give low-income families opportunities during difficult economic times to raise a family in a home and neighborhood whose quality exceeds that which they could have otherwise afforded. It is a reliable and safe source of funding, and with the number of available rehab properties below market value reaching record levels, there has never been a better time to take advantage of federal incentive programs to buy a rehab home! Who knows, in ten years, it could make you $1 million!
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Based out of Indiana, Jay Redding is a real estate entrepreneur, with experience in single family and multi-family investing.
