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Rehabbing for Instant Equity as a First Time Buyer

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Rehabbing for Instant Equity as a First Time Buyer

Believe it or not…..but Tallahassee is a great market to purchase a home.  One of those reasons is we have distressed properties all over the area.  From the top price points to the bottom, there are distressed properties that need the rehab to get back to market value.  Look at other markets such as Denver, (I know, Denver and Tallahassee markets are nothing alike) but Denver has no REO properties due to the strong buyer demand and market appreciation.  So how do you get in this market as a first time home buyer with no experience?  Let’s game plan!

  1. Find a house below market value. This has to be step one and is the most important step.  Find a house in the area that with renovation costs plus 15% is still below market value.  For example, we find a house selling at $100,000 but needs about $50,000 worth of renovations.  After running comparables in the area, we notice homes in good condition are selling recently for $200,000.  This sounds like a home that could give us instant equity of $50,000.
  2. 203 K Renovation Loan – One of the best loan products to build instant equity. The 203k renovation loan allows the purchaser to acquire funds for the price of the house, plus the cost of renovation.  So back to our example in step 1, if the house is $100,000 and we have a contractor tell it will take $50,000 to get the property in good condition, the lender will advance the $150,000 for price and rehab.
  3. How much are rehab costs – We’ve all seen the HGTV shows where the investor walks the property with their G.C., (general contract) well this is a great step to take. Along with a home inspection, you want to have an itemized list of all upgrades and the cost associated.  Always expense on the higher side.
  4. How does the 203 K Loan work? – Yes, there is more paperwork with the 203k and a usually a higher interest rate. All contractors have to be licensed and show experience for over 2 years.  The lender will usually have a list of qualified contractors to contact.  For first time buyers, there is an FHA 203K loan where you can put down 3.5% of the balance.
  5. Wealth building – After one to two years in the home, you can sell the property or move out and keep the property as a rental.

Risks – Always examine the risks, especially with the 203K loan.  Use a professional agent to examine an estimate of how much equity the home will have once the rehabs are complete.  Biggest issue may be the amount of rehab.  Once you start taking the house apart, you may find larger issues than you thought.

Hope this helps you with your path to wealth.  If you would like additional information you can reach out to Chris Waters at


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