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Once we jumped through the hoops with the bank and acquired the property we focus on the rehabilitation. Before work can start we have to pull together the financing picture. It is very importnant to have the financing strategy nailed down before the close date so to avoid any surprises.
In this scenario the client purchased with cash & will improve with a combination of cash and credit. When the rehab is complete, the property will be financed in the neighborhood of 60-80% LTVonce the units are rented and the work completed. Typically that means my client will recoup all their out-of-pocket expenses, pay off the credit that was borrowed (credit cards, consumer loans, etc.) and have anywhere from 40% – 20% equity in a property they don’t have one investment dollar in. Let me restate that in a generic # example:
$20k Purchase Price
$20k Rehab Cost
$40k Total Money Out of Pocket Invested
$100k Appraised Value
$60k Loan Obtained Once Rented & Rehab Complete (60% LTV)
$20k Profit to Investor from New Loan (“Cash Out”)
40% Equity in Property with No Capital Invested (actually Cashed out $20k)
This is a simplified version of what we have provided our clients very consistently. It typically takes $20-$100k of cash with the projects we take on and the final values typically come in between $100k – $200k. We can accommodate projects starting at $1k through $1m. This is a specific niche that we have filled in the area. There are only a couple investors in the area who are completing these projects with any degree of success. Our projects have returned amazing results and the actual cap rates of return are unbelievable.
The lending world is a mess right now and mostly all lenders (private money included) are understandably tightening the reins on programs and qualifications. The quick fix and flip are hard projects to find decent rates and lenders that will actually invest in since values are so volatile. Knowing the right banks and loan professionals is crucial in these acquisitions and we have great contacts.
If you have any questions about financing these type of projects, the actual returns we recieve or a point in the right direction, feel free to ask.