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All posts tagged 'after repair value'

Hard Money After Repair Value Benefits

by Eric Allee 25. September 2010 00:14

Hard Money AppraiserA limited number of hard money lenders arrange and appraise rehab financing based upon "Future Value" of a property. Which is also called "After Repair Value" appraising. 
To clarify: Assume an investor/borrower has an opportunity to purchase a house for $125,000 and believes the "After Repair Value" is $175,000. If a loan is based upon the purchase price and the maximum Loan to Value (LTV) is 60%, the gross loan amount would be $75,000 ($125,000 times 60%). The down payment would be $50,000 plus cost.
If a loan is based upon "Future Market Value" and maximum Loan to Value is 60%, the gross loan amount would be $105,000 ($175,000 times 60%). The down payment would be $20,000 plus cost, which is $30,000 less than the scenario above. This also increases the potential yield on invested dollars. 
Assuming the investor is able to negotiate a lower purchase price of $120,000, potentially his down payment would be decreased from $20,000 to $15,000 ($120,000 less $105,000). 

This is why purchase of rehab properties using "Future Value" appraisals is so popular!

Prior to 2007 hard money lenders were lending as much as 75% of "Future Value". Today, because of the recession their guidelines are between 50% and 65% of "After Repair Value". Most lenders require a down payment of 10% to 20%.

The above example assumes the lender likes the property, borrower has decent credit and ability to make monthly payments. Hard money guidelines are not standardized and the example loan above may be approved by some hard money lenders and turned down by others.


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