LVR on a Condo complex??

Question

I'm doing alot of research on condos and building them and then of course selling each unit. The thing I haven't been able to find is about the LVR of the complex after the condos are sold. I have no idea about this topic. I've searched on the Internet for a few days and cant find anything on it. Private investors for hard money loans like to lend a percent of the LVR but I dont know how to figure that out. I really hope this isnt a simple answer that I have over looked somewhere. Sorry if it is.

-Rich

Jon Holdman · Answer

OK, that makes more sense.  A hard money lender will want to know the ARV - after repaired value. They will lend based on the ARV, rather than the purchase price like a conventional lender.  They will typically lend 60-70% of the ARV.  That's the LTV, just that its based on the future value (ARV) rather than the current value.  If the purchase price plus the rehab is under that amount, you'll have some extra cash from the deal.  That said, you'll have to cover closing costs for the purchase, points on the loan, holding costs (utilities, HOA, etc), and interest payments while you're holding the property.
          
          Building an entire condo project is quite a big project.  You're probably talking about a combination of lending.  You may need some seed money to do your initial evaluation and planning.  That would include things like choosing a site, determining the market, and getting initial zoning and planning approval.  Best if that's your own money, since you'll pay a pretty penny to borrow it.  The risk of losing it is quite high.  If that all passes, then, you'll need a much larger chunk of change to actually do the construction.  Used to be you could get a bank construction loan, and perhaps a mezzanine loan if the construction loan wasn't quite big enough.  Very tough these days.  Then, once its done, you sell and pay off the other loans.  When you're done, you're completely done.  There is no residual piece.
          
          With a SFR, if you can buy and repair for 70% of the ARV, you stand to make a profit around 10-15% of ARV.  Not sure what the math would look like for a project like this, but its got to be in the same ballpark.

The ARV of a project like this would be the total value you expect to get for the units when they're sold.

Richard Bruce · Answer

That explains everything. I new this project would be big and but I wanted to look into it anyway. I have a location on a good street, already zoned for multi-family use, minutes away from anything you need and its in a real good city. I've learned the market in that area from talking to real estate agents and getting to know what to expect to get from each condo. I just dont have all of my part of the start up money. Also, I would need about 85% ARV which I know is unheard of so this condo project will be put on the back burner and I'm going to try and start investing in rehabs, a little more easier and budget friendly.
          
          Thanks for the explanation though Jon. It definitely helped.

Richard Bruce · Answer

Thats what I was thinking, the complex itself shouldn't have much if any value at all but I've been seeing from other websites and talking to people is that people who lend hard money loans need to know the value of the property after its built/rehabbed, rightfully so. So I was wondering if they look at the designs of the complex and then see the market value for each individual  condo when finished and add that up for a total to see if it would be smart to give the loan? If not this, then how to they tell if its a smart loan or not?

Jon Holdman · Answer

OK, LTV.

Why would there be any "value" after the condos are sold?  Is that the common areas and the HOA or something?  Or, do you mean what LTVs will the buyers of the condos be able to get?  That's going to depend on the buyers.

Jon Holdman · Answer

What's LVR?

Richard Bruce · Answer

LTV maybe.

Loan-to-value ratio is what I mean.

I've seen it refered to as both LVR and LTV from different websites.