Properties that need renovation often do not fit the same financing structure as stabilized rentals. Buy-and-rehab loans are designed to finance the acquisition and improvement of investment properties, giving investors a short-term capital structure that can lead to a sale or long-term refinance.
What Is a Buy & Rehab Loan?
A buy-and-rehab loan is short-term investment-property financing designed to help acquire a property and fund eligible renovation work. It is commonly used for fix-and-flip projects and BRRRR strategies where the property needs improvement before sale or long-term financing.
How the Financing Is Structured
The lender may fund a portion of the acquisition at closing and hold renovation funds for future draws as work is completed. Structure can be influenced by purchase price, current value, rehab budget, after-repair value, borrower experience and credit profile.
Understanding LTC, LTV and ARV
Loan-to-cost compares financing with eligible project cost. Loan-to-value compares the loan with property value. After-repair value estimates the property's value after the planned renovation is completed. Investors should understand which constraint drives the proposed loan.
The Rehab Budget and Scope of Work
A detailed scope of work helps the lender understand what will be completed, how much it should cost and whether the plan supports the projected value. Weak or incomplete budgets can create underwriting and draw problems later.
How Rehab Draws Work
Renovation funds are commonly released in draws rather than all at closing. The investor completes agreed work, submits a draw request and may need an inspection before funds are released. Investors should maintain enough liquidity to manage timing differences between contractor payments and lender reimbursements.
Fix & Flip Exit
A flip strategy typically expects the renovated property to be sold. The loan term, extension options, carrying costs and sales timeline should be evaluated against a conservative project schedule.
BRRRR Exit
A BRRRR investor intends to renovate, rent and refinance rather than sell. The stabilized rent, expected value and likely DSCR refinance should be considered before buying.
Related: BRRRR Financing: How to Finance the Buy, Rehab and Refinance
What Lenders May Evaluate
- Purchase price and current value
- Rehab budget and scope
- After-repair value
- Borrower experience, credit and liquidity
- Property type and condition
- Project timeline and exit strategy
How Landlord Lending Helps
Landlord Lending helps investors evaluate short-term acquisition and renovation financing and connect the initial loan with the intended exit, whether that is a sale or a refinance into long-term rental financing.
Explore the Buy and Rehab Loan program.
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Request Loan TermsFrequently Asked Questions
Can rehab costs be included in the loan?
Many investor rehab programs finance eligible renovation costs through a draw structure, subject to lender limits and approval.
Are rehab funds given at closing?
Often they are held and released through draws as work is completed.
What is ARV?
After-repair value is an estimate of the property's value after the planned renovation is completed.
Can I use a buy-and-rehab loan for BRRRR?
Yes, this type of short-term financing is commonly used for acquisition and renovation before a long-term refinance.