I started my company with the intention of flipping houses. I still want to do that, but I am now looking at also buying rental properties for long term assetts. Please let me know if this works…
2 BR 1 BA 850 SF home
Asking price $15,000
Rehab/holding costs $5,000
All in $20,000
ARV $35,000
If I pay cash for the house and rehab, can I get a mortgage for a % of the ARV that is more than I actually have in on this so I can get some cash back when I get my mortgage? So once I rehab the house, can I get a mortgage for say $26,000 (approximately 75% arv), and have cash in the bank for repairs and whatnot?
Any input would be appreciated as always.
BlueStar,
Yes, you can get cash back at closing, IF you use a small local bank that keeps their loans for their own portfolio. I have done this many times. However, banks don’t use ARV, they use appraised value. In addition, I have found that they normally don’t want to loan more than about 70% of the appraised value if you will be getting cash back. Finally, it is unwise to borrow any more than absolutely necessary because you will be paying that money back with interest and the increased payment will cut into your cash flow.
Mike
Thanks for the reply Mike. I get that I don’t want to borrow any more money than needed. Right now I would want to borrow 3-5K more to set up my payroll so that I can do this full time and get more properties. As I build my business I will only borrow what is needed to keep my payment down. I am using the formula that rent is no less than 2% of what I have in the property. Any other ideas anybody? Thanks again Mike!