Q for Iron Range or anyone else about appraised value

Hi everyone,

I know that it is recommended to purchase a property at about 60% of appraised value if you want to use HML. How do you know what the appraised value is without actually having an appraisal done before you make an offer?

Also, maybe this is a dumb question but in what circumstances would someone be willing to sell their building for so cheap?

And, if you are able to get the building for 60% of appraised value can you then use 100% hard money without having to use any of your own money.

Any info is greatly appreciated,



Joining this site was the best Real Estate move you will ever make. So Welcome!

  1. If you can get a property 60% of the ARV (after repair value) then you can use a HML to purchase the property for 100%. I use 60% because then you can have the HML pay the seller off, pay for rehab expenses, and pay the closing cost which will be around 4-6% of the purchase price. If you can get it even lower then 60% then you can somethings even roll up to the first 6 months of mortgage pmts into the loan.

  2. Supply and demand is one reason why a seller would sell at such a cheap price. Example: There is a property that you can get for $25,000 that could be worth $100,000. Unfortunitely for the seller not to many people have $35,000 sitting in the bank for a new roof, new siding, appliances, carpet, etc. The reason you are getting a property for such a good deal is “USUALLY” because it needs some rehabbing or at least some light renovation.

  3. 1-4 units are easier to estimate the ARV. You want to learn your market and learn how to cash flow a property. Then it is easier to know how much a property is worth after you have made a few repairs. KNOW YOUR MARKET is the answer.

With larger apartments it is more difficult. It’s difficult because there isn’t very many of them out there. Unlike SFH where there are thousands on the market to reference. I use a simple formula I created for my market.

Net income X 10 X .60 = A deal
Monthly rent % .024 = A deal

If it’s 1-4 units then just use comps to figure out the value in that area. Otherwise you’ll with larger units it is more difficult.

Thank you so much Iron Range. That was extremely informative. And thank you for the warm welcome.

Since it is easier to calculate the ARV on a 1-4 that leads to my next question. We own 2 3 families which we just refinanced in January. The thing we ran into when we purchased them and with the refi was that they didn’t count the rental income towards the mortgage. They only look at the income from my husband’s job. He makes a very good living and we have great credit but he only has one job. They took 75% of the rental income and subtracted the mortgage from that. Then they took what was left and added it to my husbands job and then applied our personal mortgage for our home and the mortgages from the multis AGAIN! So they counted it twice. The morgtage broker said we could buy 1 or 2 more multi families and then we would max out our Debt to income ratio. I am concerned about being able to refinance the multi out of an HML and into a conventional loan with a normal interest rate.

The method that the bank used doesn’t make any sense to me. I know that there are people who own many many multi families as well as people who own many
multifamilies who don’t even have a job. The multi’s are their job.

I’ve heard a little about a no ratio loan. Would that work?

Thanks so much again!


If you are buying at 65% or less of the ARV then you should have no problem refinancing. The HML will either be able to refy you out in a couple of months when the rehab is complete, or they will definitely know someone who can get the job done. If your husband has a job and decent credit then I don’t see a problem.

The HML will be able to answer more throughly your questions when they pull a credit report and get income info from you. But I’ve never heard of anyone with a job and fair credit not being able to refy a property that has 35+% worth of equity.

I would suggest that you look at purchasing units that are 5+. This is where commercial financing differs from residential.

At the lower loan amounts, lenders will look at your credit and income, but the income of the property weighs in very heavy.

And if you buy it right (cheap) and use a hard money lender to purchase it, it will be easier to refinance.

Patti Porter

Here are some other options for your question on how to find motivated sellers.

  1. Vacant properties usually have potential to be a deal maker.

  2. Properties that need renovation or a full rehab can be great deal makers. New investors don’t usually have money for repairs and most people don’t know about HML. People want nice properties, not ones that need work. So Low Demand = Deal Maker.

  3. Landlords who can’t handle tenants. A classic for finding good deals.

  4. Getting your name out there and always looking on websites.

  5. Looking at properties that have potential to be a deal, and then put a low enough bid down in order to get it where you need it to be at.

  6. I have about a dozen SFH properties that I’m scheduled to see next Tuesday. They almost all break even or close to it. I will look at everyone and take lots of notes. Then put a bid in on the best one with a 24 hour response requirement. So if the first seller rejects my low offer. Then I will move to the next favorite property and put a low bid with a 24 response requirement, then so on and so on…

I have tried to put a bunch of bids down at one time, but it was very difficult to be organized and it was VERY stressful. I might try it again, but to start you will want to put one or two bids down at a time.

You have to do something. Whether it is finding deals or making deals by low balling a bunch of places.

Thank you so very much Iron Range! Your posts have been extremely helpful and you are very knowledgeable.

I guess I’ll get out there and start looking!


Hi Patti,

I have a few questions in regards to your response about purchasing commercial properties. You say if you are able to purchase a property cheap enough, use a hard money lender to buy it then refinance it.

My questions:

  1. How cheap are you talking in terms of % of appraised value?

  2. What kind of a rate would a hard money lender charge you if purchasing a property at 60%-70% of appraised value?

  3. If you use a hard money lender to make the initial purchase, isn’t there a time period after the initial purchase that you won’t be allow to refinance? (I mention this because at a high rate this time period is probably extremely crucial)




Sounds like your broker was doing a full doc loan or stated and could not state the income any higher than now to keep it believable. You can only go so high if your say an administrative assistant. Not like you can say your making 150K a yr, though its possible for a few.

What you need is a no ratio loan which has better rates than a NO DOC loan since you just state your income and no verifying is done.

I have several properties, so I use Stated Income and even sometimes Stated assests where they do not have to verify my funds (VOD). But this is all credit score driven and of course lower LTV’s.

Shop some brokers and find someone that deals with investors and knows how the game is played.

The problem with buying 5+ units is that there are less of them then 1-4 unit properties. How many 20 unit apartments are in your area (only a handful), but how many 1-4 unit properties are for sale in you area? Probably hundreds of 1-4 unit properties are for sale. This means there is a much greater chance of getting a great deal if you focus on 1-4 units, while keeping an eye on 5+ commercial apartments.

HML charge between 12-18% with 4-6 points. Average would be 14-16%. Whether you buy a SFH or a 20 units they will want it to be around 65% or less of the ARV. But you have to take into consideration that you will probably want them to pay closing costs.

HML want you to refy as soon as possible. They like that they make 4-6 points then get all their money back in a few months. Example they borrow you $100,000. They get $6,000 in closing costs + 16%. So they get $6,000 right away and then get 16% for 3 months then they can do it all over again after you refy and give them their money back. The HML may even require you to refy within 4-6 months.

Thanks Yrush2000. My broker was definitely doing a full doc loan. We weren’t doing a stated loan. So with a no ratio they don’t look at your debt levels just credit? Also, how much are the LTV’s on a no ratio? As I mentioned we want to buy as many of these as we can but if all they look at is my husband’s job to cover all these mortgages it won’t work. He makes a very good living but not enough to cover the mortgages on a multitude of multifamilies.