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  Hard Money Blog
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All posts tagged 'hard money lenders'

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.

Hard Money Financing is King!

by Eric Allee 24. August 2010 09:50

 

Hard money, financing vs. bank loans.

Hard Money vs Bank LoansWith limited availability of funding from banks and other institutions hard money for many borrowers is the only game in town. Hard money lenders are helping with the purchase of both residential and commercial properties. Popular among lenders are loans to finance the purchase of non-owner occupied houses for short term holding. Typical dollars loaned on these properties are $100,000 to $600,000. Buyers are purchasing the properties substantially below the current market value. After repair and fix up they are sold for potential short term profit. If annualized the return on invested dollars can be substantial.


Hard money, also called private money financing is also available for apartments and small commercial properties. Bank guidelines are more conservative for these loans. Documentation is very  extensive as banks pick and choose who to lend to. Fortunately, hard money lenders are in the market and are more liberal and aggressive than banks!

While hard money is available it is not as plentiful as it was prior to 2007. Many hard money lenders were burnt by the recession and have not returned to the market. Currently, there is a greater demand for loans than available money. As the real estate market improves private money lenders will return as they did after the seventies and nineties recessions.

It is more important than ever to present a complete and professional package to lenders when applying for financing. With the large volume of applications lenders have a tendency to put the poorly prepared packages at the bottom of the stack. Additionally, make honest full disclosure. Lenders will automatically turn down a loan if they feel the borrower is less than honest. 


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