Our 2900 sq/ft Ranch flip on 5 acres
We closed on our 2nd flip here recently. It is a 2900 sq/ft ranch style home on 5 acres in East Texas. The home was bought from the MLS. I noticed it after driving by it all the time and seeing a for sale sign on it for a very long time. It looked like it was dated so I went to Realtor.com and found it. It was all out dated on the inside. The home was listed for 190k. So my wife and I took a chance and had our agent put in a offer for 160k and seller paid all closing costs it was accepted. At closing we even received a check. I was figuring a 60k rehab.
Before putting in the offer I spoke with my lender whom we had done another flip with. We went over numbers and we talked about getting a appraisal. The bank would loan up to 80% of the appraised value. We talked to the person who had done our appraisal on the 1st flip to see if he would do this one since it was in a different market, which he had no problem doing. So we went ahead and ordered the appraisal and gave him a list of everything we were going to do with the property so it could be appraised as if it was already completed. My lender agreed to accept this type of appraisal. The appraisal came back at 330k and was submitted to the bank.
MISTAKE #1
When having an appraisal done the lender has to order the appraisal so there isn’t any conflict of interest. With us ordering the appraisal and submitting it to the bank that appraisal could not be used and another had to be ordered by the back by a different appraiser. By doing this another appraisal came back significantly lower than the first at 256k which only allowed us to borrow 204,800k for the purchase and remodel. Putting us short about 15k for remodel.
CREATIVE FINANCE STRATEGY
Our lender agreed to let us borrow up to 80% LTV based on the appraisal of the property as if the property had already been remodeled. Yes you may have to search a little bit out there for an appraiser that will do this but they are out there. This would allow you to purchase the property and have the funds for the rehab with no money out of pocket.
