Figuring ARV on Multifamily

[William Hirsch]

Hi! I'd like to take the opportunity to introduce myself, as i'm new to this site, and also ask a question related to Multifamily investments, and I apologize if this question has been asked before.

I'm a new investor looking to find a cash flow  rental property between 4 and 10 units i the Houston area, and as i analyze several listings, i ran into this question.

If i want to finance at zero percent using a hard money loan, how do i go about finding the ARV figure for such property? From what i understand, a percent of the After Repair Value is the metric used to calculate proceeds on a hard money loan, and such ARV is based on comparable values from houses within the subdivision of the target property

Given that a multifamily residential property may not be in close proximity to another, it seems difficult to find a true comparable.

I read that you may need to compare cap rates between properties. So, if i can figure the cap rate on my target property, can i directly compare to another property that is rent ready  but at a farther location within the city?

Thank you in advance,

William

[Ann Bellamy]

William, I'm guessing you mean zero percent down, not zero percent interest, right?

You are unlikely to get a hard money lender to bite on that one.  Skin in the game is an important concept in hard money lending.  

Let's say you find a screaming deal which is turnkey, fully rented and is worth $300K. You've managed through your superior negotiating skills to get it under contract for $200K. If a hard money lender lends 70% of the ARV, you figure you should be able to borrow up to $210K, or 100% of the purchase price, right?

Wrong.  Most lenders (not all, but almost all) want you to have a minimum down payment just like a bank.  Why?  They want you to have something to lose if the deal isn't as screaming as you thought.  The first money at risk has to be yours.

If you find a lender who will lend 100% of the purchase price to a newbie, that should raise some red flags.  It could be that he wants to foreclose on the property and keep it. I don't happen to work with lenders who work that way, but they are definitely out there.

I didn't address the issue of valuing multi-families, that's a whole different issue, and you'll find lots of posts on the topic here on BP