Direct Hard Money Lenders – How to Calculate an Offer Price of a Property?
Category : Hard Money Loans , Real Estate Loans
We receive a lot of queries related to the purchase price, repair costs and offer price of the properties. People want to know the calculation process used by direct hard money lenders for making an offer because it is a known fact that hard money lenders only lend 70%of market value after the repairs have been completed on a property.
First and foremost, you need to realize that the offer price and repair costs are two separate containers of money.
Lenders can fund you up to 100% of both of these containers but both of them should be equal or less than 70% of ARV (after repair value).
This doesn’t mean that you’ll get all the money together for closing the deal.
You will get a particular amount of money for purchasing the property at closing table and the repair money will be deposited into an escrow account after the deal is closed by a hard money lender.
If you are in a perfect situation, you won’t have to add any money as repair costs into the offer.
Let me explain this in detail.
It is very important to figure out what kind of repairs you are willing to do and get an estimate. After that you should determine the ARV. You need to take 70% of after repair value and subtract the repair costs.
This is the maximum amount which you’ll get as an offer and still get financing for the purchase price and repair costs.
On the other hand, you need to be very careful while estimating the repair costs and ARV.
But you need to keep in mind that the final amount of ARV and repair costs would be based upon what have been finalized by direct hard money lenders, not you.
This is usually quite different from the calculations of an investor.
The lenders usually hire the services of two different property evaluators to determine the ARV and repair costs. Both of them send more than a dozen comps after evaluating the property.
This is an extremely efficient system for determining the ARV and repairs, which is followed by few lenders like us.
So, if you are fine with putting some money down or invest in repair costs of the property, you can amend the offer price.
Another important thing, which you should keep in your mind, is the fees that are due during loan closing because direct hard money lenders will not finance that. This would be between 4-6% of the total loan amount and you’ll have to pay it from your own pocket.
The crux of the story is that you’ll have to work on several different offers before you get the numbers that make sense.
But it’s a surety that whenever you’ll find the perfect property, it would be worthy of all your time and efforts!