If I'm looking at a commercial property that currently appraises for $1,000,000 but able to buy it for $800,000, would a bank lend 100% of the purchase price? This is assuming the underwriting is based on 80% LTV.
usually you need real cash equity regarless of ARV or FMV.. although I talked to a dude in Chicago and he was able to work his lenders with Seller credits and put less than 30% and if he could be believed he was putting very little if anything down. but I would have to see those to believe them
It would likely depend a lot on your personal circumstances....investment history, credit rating, cash reserves, etc. That being said....a typical LTV is ~70%....80% sounds on the high side, but perhaps doable.
However, the LTV will be based on the purchase price, as it reflects the market value (i.e. what someone (YOU) is going to pay for the property). If you can buy it for $800k and you know it is ACTUALLY valued at $1,000,000....you are likely going to have to put down cash on a PP valuation of $800k ($160k @ 20% down conventional/$28k @3.5k down FHA), not the appraisal of $1,000,000.
It's pretty complicated and I've read differing opinions on the topic. Some would say that if you can purchase it at $800k, but its intrinsic value is $1,000,000 then you have immediately gained $200k in equity, despite no improvements being made to the property. It sounds sketch in theory, but in reality, it probably depends upon the circumstances of your purchase. If it is an off-market purchase made under special circumstances available only to you, then you may actually have created $200k in equity, because you may be able to bring some value/management to the property that the prior owner wasn't able to do, in order to value a sale at $1MM.
In any case, I doubt you are going to be able to find a bank to give you 100%LTV on a PP of $800k, despite the appraisal at $1MM.
Thanks for the replies. Alexander, I'm sure you're right. Banks almost always want to see some money no matter how good a deal