It seems like most HML lend 65% to 70% of ARV.
So when analyzing a deal, a rule of thumb seems to be ARV x .70 – Cost of improvements = Maximum Offer.
So how do most real estate investors come up with money for Holding Costs, Acquiring Costs, Quiet Costs, and all other costs not associated with fixing up a house?
Thanks,
Paul
You’re rule of thumb is off.
ARV x 70% - Closing Cost - Cost of Improvements - (and sometimes lenders require 6 months of payments rolled in) = Funds that can be applied to sales price.
Many hard money lenders will allow seller 2nds so the figure above may not be your maximum offer if you can work something out with a short note.
Dont forget that the money put to escrow for fixing up the house is not advanced out. It’s only there for reimbursement of work completed and inspected.
So the money received from the lender cannot be used to fix up the property, only for the purchase?
How do rehabbers cover those costs then if they have no start up capital?
Thanks,
Paul
Lenders do include fix up funds within the loan. None of those funds are given to the borrower unless works been completed and inspected. So if there’s $20k in work the borrower may need to split up into 4 or 5 draws to make more manegable.
Sometimes contractors can be flexible and paid after completing. Home Depot and Lowes card are another source for start up capital.
Borrow from a relative, credit card advances, signature loans…etc
Someone with no real way to cover these may want to consider other investment opportunities like wholesaling, birdogging, or assignments.
I’d use this formula:
BPO = ARV - Cost of Repair - B/S/H Fees - Your Desired Profit
BPO = best possible offer
B/S/H Fees = buy/sell/hold costs
Regards,
Scott Miller
Most HML programs allow for the financing of the purchase + rehab costs + closing costs (+ monthly payments in some cases) as long as the sum total of these costs don’t exceed the lender’s max. allowable ARV.
Regards,
Scott Miller
Great information,
Thank you both for your input
Paul