We are about to do our first commercial mortgage on a portfolio of 7 SFRs on up to 80% LTV with a 20 amort / 5 yr balloon. We are inheriting tenants on 6 of the 7 and not planning significant rehab for the most part until the current leases expire over the course of the next 9 months, raising rents in the process. Our lender says the 80% LTV will be applied to the lesser of (1) appraised values or (2) actual costs of the houses. We are doing this loan within weeks after closing.
For our next bundle of properties, we want to focus on the BRRRR method, maybe one house every 2-3 months if possible. By the end of a 12 month period or so, we'll have another bundle ready for a loan (and have been told by the bank they'll do another one with us). Will a commercial lender typically recognize the appreciated value after rehab irrespective of how low the property was purchased for, or is this a battle of valuation methods we need to prepare for?
@Tal Simpson , their "seasoned" appraisal (after rehab) should pay no attention to how much you bought them for in the first place. My question to you is: Are you also treating this purchase as BRRRR? ie. Are you trying to ensure that your purchase price is significantly lower than what your Lender may appraise them for (before rehab)? All the best...
Thanks Brent, that is the answer I was hoping for. For this first group of properties, the value off which our 80% loan is based will be closely aligned with the purchase price. Longer term we'll be able to force appreciation on these, but we aren't necessarily doing the BRRRR strategy on these. For this next group of houses, yes, we are planning on buying significantly below market value to give us a margin to gain equity through rehab before cashing out. This first group is giving us instant cash flow so we are a little better able to take on rehab projects on new acquisitions going forward.
@Tal Simpson , just in case you're thinking of hurrying up your rehabs, to try refinancing in just a couple of months, I need you to know that by saying "seasoned", I meant: at least six months!
[If you can find a Lender who'll let you beat that time frame, kudos]...
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