Want to secure a fatter hard money loan? Here’s how to use your property’s ARV to do just that.
If you’re here, you probably know that a hard money (or asset-based) loan is a loan that’s secured with collateral from the borrower. This collateral is usually a property and is often the property involved in a fix and flip.
Most hard money lenders will only give borrowers around 65 percent of the collateral asset’s current market value. This can work in many situations but what if the idea is to fix up a distressed property? Distressed properties are typically undervalued, and if the loan is based on that number it leaves the flipper with insufficient funds to complete the project.
That’s where the After-Repair Value (ARV) comes in. If you can convince the lender that the property has the potential to be worth much more after its fixed up, you might be able to secure more funds. How do you do this? Let’s take a look.
Calculating an ARV in a Fix and Flip
There are a few things to examine to come up with a reliable ARV:
1. Gather information. What’s the neighborhood like? What’s the square footage? How many bedrooms and bathrooms? What’s the condition? What amenities does it have? Use this (and as much other data you can) to find 5-10 similar properties that have sold in the last three to six months. Use their final sale value to help get an estimate of what yours will be worth when it comes time to sell.
2. Use professional appraisers. Any appraisal is an educated guess, but professional appraisers make slightly more educated guesses than those outside the business. Use their numbers as one indicator of value.
3. Demonstrate your expertise. If you’ve flipped homes in the past, this might be your greatest ally for getting a betterhard money loan. Show the lender your previous projects; in particular the choices you made that helped the home sell faster or for a higher value.
Work with a Broker in Arizona for a Hard Money Loan
Experienced professional brokers, like Level 4 Funding, can help you get good rates, a more sizable Arizona hard money loan and realistic repayment terms. Give us a call now to find out how we can help you with your next flip.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.