Hard Money Loans based on After Repaired Value

8 Replies

I would be grateful if anyone could shed light on the process hard money lenders typically go through to establish the after repair value of a property when ARV is the basis for the contemplated loan. How long a diligence period can one expect? Any experience with this issue in the SF Bay Area is especially welcome.

@Darius Ogloza

To answer your questions. The due diligence period for a single family flip or rental loan is days if not weeks. Most lenders want to close in under 28 days. That depends on the borrower submitting the documents, scheduling the appraisal and getting the title work done and hazard insurance in place. So it's on you not the lender.

Most lenders will do 90% of purchase price, 100% of rehab but you'll need a scope of work and a draw schedule so you need to consult your General Contractor who needs to be licensed and insured.

You will need to show reserves, be an entity so LLC or Corporation and have a business bank account.

They will fund up to 65% of ARV!

Hope this helps!!!

Originally posted by @Darius Ogloza :

I would be grateful if anyone could shed light on the process hard money lenders typically go through to establish the after repair value of a property when ARV is the basis for the contemplated loan. How long a diligence period can one expect? Any experience with this issue in the SF Bay Area is especially welcome.

The ARV is established by appraisal like LTV You will need to provide a Scope of Work for the appraiser to use. Using us as an example - we expect to close 3-4 business days after the appraisers leasurely grace us with their report. During this time Title should have been taken care of. We expect to close on a SFR in about 2 weeks or so. When all the stars miraculously align we can do it in about 9 business days.

Of course all this presume the borrower is also prompt and there are no delays. I could probably write a book already on ways that due diligence/underwriting/closing can be delayed.

some of the bigger HML ers in the bay area do in house valuations.. so there is no formal 3 party appraisal.

Conventus

Lendinghome

Iron Bridge 

all do in house valuations.. 

And once escrow is open and title is done 36 to 48 hours  and lender has vetted you as a borrower things fund in the matter of a few days.

Keep in mind though to legally lend fix and flip on one to four in CA.. takes a license  Either Consumer finance license  State lender license with NMLS or CA real estate Broker.. 

Gentlemen, truly helpful info.  I appreciate your insights very much.  To fill in details for the curious, I have a fixer under contract in southern Marin county.  The contract provides for a financial contingency with 14 day expiration.  I have been doing "all cash" deals for the past few years in other markets so I did not have a "go to" mortgage broker or local banker lined up.  

I informed the guy I found at the outset that conventional bank financing would not work due to my special circumstances (mostly because my income fluctuates wildly due to the nature of my work and my 2018 tax paperwork showed a loss)  and inquired about asset based financing, HM, other alternatives based on my balance sheet rather than on my most recent income statement.  Broker reassures me that my balance sheet should do it and that a great rate was possible.  

We opened escrow, did the title work and got a bank appraisal (which concluded that the present value of the property equaled the purchase price).    I know the market well and am buying at $450 per square foot where the typical sale is in the $680 to $850 per square foot range.  Repair costs should come in under $100K and we plan to self-finance those. 

 After running me around for a week gathering paperwork, broker informs me that the bank will reject the conventional loan he was working on and that we need to go HM route.   I now have 4 business days to secure alternative financing unless the sellers grant an extension (which I will ask for on Monday).  

@Darius Ogloza   With 14 days, you should have gone HM from the beginning.  It doesn't sound like the bank and their appraiser works with investors because the appraiser should have included an as-is value as well as an after repair value.  They didn't.  Anchor Loans does a lot of business in CA, you might see if they can make something happen in 4 days.

Thanks for the suggestion, Mike.  With these insights, I now see how completely screwed up this deal was.  Fingers crossed for an extension.