Do the numbers work?

3 Replies

Looking at a property, and trying to get the numbers right to be able to purchase.  

Asking prick is $820k. It's been worked out that with $150k of renovation, ARV would be $1.2mil.

I'm told that there are some banks that will fund 75% based on the after repair ARV. 75% of 1.2mil is $900k. $900k minus $150k for repairs is $750k.

Does this mean if I can get the seller drop the purchase price down to $750k, I can essential get this property with no money in?  Or, is there a refi in this process?  Would I be putting in a significant down payment, and be paying for all the repairs, but I'd get all the money back after a refi?  

How does this process go if I go this route? Is this the best route to go?  Would you do something different?  

I've also seen a recommendation to have the seller hold a note for 25%, I'd get the 75% loan and pay the seller back over the next 20-25 years....   

Thoughts on all this?

Traditionally banks loan on appraised or purchase, whichever is lower...you may be describing a hard money lender...that's a different ballgame altogether...

It's impossible (in 99.999%) of all real estate acquisitions to use financing and acquire a property with no money out of pocket...best you could do is HML if you're flipping this...you may scrape by with points and fees...

If you're using HML you will have to sell the property or settle the debt with a re-finance...re-fi's are typically 70% LTV...and completely dependent upon your personal financial situation, DTI...easy to get burned if you don't have capacity or the value is not there...and this is an expensive asset.

A conventional lender can't lend if seller financing is involved...lending constraints...

@Grant Zabielski

Got it Brandon, thanks!  So, I spoke with a bank and got some more info.  Can anyone let me know if there's a better option than this:

Purchase price: $750k

Immediate renovation repairs: $150k

75% loan to value on appraisal (purchase price plus repair costs=$900k): Loan on $675k

25% Down payment: $225k

My partner pays half down payment, and I pay half down payment: $112.5k/$112.5k

Is it smart to use this much of my own money if I have it, or is there a better/smarter way? Is it smarter to use a hard money lender? Can I do a refi to pay them back like I hear about so much when listening to you guys talk about BRRRR strategy?

Don't forget that you will have to refi and you want to do it sooner rather than later or the HML rate and fees will eat you alive. Talk to your lender and see what the max they will loan you is on the refi once you complete the rehab. At only 70%, you're only pulling 840k out. At 80%, you're pulling 960k out and you have just played the BRRRR game pretty well.