Beginner question

3 Replies

When I start to hold properties I have a basic question.If I am getting leads that are off market and getting them at 70% arv - repairs shouldn't that count towards my down payment? 

If I use a HML to restore the property and am left with 30 % equity shouldn't that be enough to refi to a traditional investment mortgage? I do have a mortgage guy I will be meeting with shortly I just don't want to come across uneducated.

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

That used to be the case. Loans used to be based on the appraised value and if you were buying below 80% loan to value (LTV) no down payment needed. Thanks to our all knowing government, loans are based on the purchase price. So, even if you are buying at 50% LTV, the bank wants 20% down for the loan. I hope that was helpful.

Hey @Ryan Dossey ,

"If I use a HML to restore the property and am left with 30% equity shouldn't that be enough to refi to a traditional investment mortgage?"

That does seem about right.

One thing you will want to be careful about in that strategy is the appraiser lottery. I have a duplex that we took through this exact process and in california appraisers are assigned in a blind pool. I'm actually quite sure she was drunk. She even got the rent amounts wrong ($300/month under). Her appraisal was about 5% over our purchase price a year before when the market has gone up over 30%. We contested as did the bank to no avail.

Not only could you end up with a crummy appraiser, but typically the appraisals come in lower on a refi than on a sale, since they don't have a solid buyer to define a price. They depend on historical comps, and based upon the state of the market, foreclosures and other factors, you may get a surprise. Just a note of caution based upon a recent experience.

@Shane Pearlman I appreciate you bringing that possibility to my attention. That is not something I had considered. I guess if I am buying right and I run into a situation like that I could always flip the property as an exit strategy. 

Ryan Dossey, Real Estate Agent in IN (#RB15001099)

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