Tag Archive for: LTV

Fix and Flip Loan Basics: What Is ARV?

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When a lender decides your loan-to-value amount, what is ARV?

The first number to know in a fix and flip loan is called ARV, or after-repair value. This is the amount you could sell the property for after it’s been fixed up.

Why is this number so important? While loans on regular properties are based on the purchase price, fix and flip lenders loan based on the ARV.

For example, most fix and flip lenders in this market lend 70% of the ARV. As an example, on a property with an ARV of $200k, you could get $140k in your fix and flip loan (aka, 70% of $200k).

On a property that will be worth $500k after rehab, you could likely get a maximum of $350k on a fix and flip loan.

What Is ARV’s Other Requirements for Fix and Flip Loans

Generally, the loan you get is based on LTV. However, that doesn’t mean that’s the exact amount the lender is going to give you.

In a fix and flip, there are two major costs: the purchase price and the rehab costs. How much the property is and how much it will take to fix it up.

Your fix and flip loan will cover a certain percentage of these two costs.

For example, in this market, if you’re a seasoned investor, they’ll lend you 85% of the purchase and 100% of rehab. This means that with any project, you’ll have to find a way to fund a 15% down payment on the purchase. But the fix and flip loan will pay for all the rehab.

As a quick example, let’s look back at that $200k ARV house. The lender will give you 70% of that amount (so $140k), but they’re still restricting purchase to 85% and rehab to 100%.

So this example might play out like this:

  • ARV: $200k
  • Maximum LTV: $140k
  • Actual as-is purchase price: $120k
  • Rehab budget: $20k
  • Actual LTV for purchase: $102k
  • Actual LTV for rehab: $20k
  • Total actual LTV: $122k
  • Amount needed for down payment on purchase: $18k

Read the full article here.

Watch the video here:

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Fix and Flip Loans Explained: Get More Money For Your Deals

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How much do fix and flip loans cost? Here’s a quick breakdown.

There’s a way to set up a fix and flip project to minimize financial surprises.

It all comes down to your loans and understanding the money side.

Here’s a breakdown on how fix and flip loans work – and how you can get more money for your deals.

What Is ARV?

The first number to know in a fix and flip loan is called ARV, or after-repair value. This is the amount you could sell the property for after it’s been fixed up.

Why is this number so important? While loans on regular properties are based on the purchase price, fix and flip lenders loan based on the ARV.

For example, most fix and flip lenders in this market lend 70% of the ARV. As an example, on a property with an ARV of $200k, you could get $140k in your fix and flip loan (aka, 70% of $200k).

On a property that will be worth $500k after rehab, you could likely get a maximum of $350k on a fix and flip loan.

Other LTV Requirements for Fix and Flip Loans

Generally, the loan you get is based on LTV. However, that doesn’t mean that’s the exact amount the lender is going to give you.

In a fix and flip, there are two major costs: the purchase price and the rehab costs. How much the property is and how much it will take to fix it up.

Your fix and flip loan will cover a certain percentage of these two costs.

For example, in this market, if you’re a seasoned investor, they’ll lend you 85% of the purchase and 100% of rehab. This means that with any project, you’ll have to find a way to fund a 15% down payment on the purchase. But the fix and flip loan will pay for all the rehab.

As a quick example, let’s look back at that $200k ARV house. The lender will give you 70% of that amount (so $140k), but they’re still restricting purchase to 85% and rehab to 100%.

So this example might play out like this:

  • ARV: $200k
  • Maximum LTV: $140k
  • Actual as-is purchase price: $120k
  • Rehab budget: $20k
  • Actual LTV for purchase: $102k
  • Actual LTV for rehab: $20k
  • Total actual LTV: $122k
  • Amount needed for down payment on purchase: $18k

Reserves Requirements for Fix and Flip Loans

In addition to understanding LTVs and down payment amounts, another important cost to understand for fix and flip loans is reserves.

Reserves are the other amounts of money a fix and flip lender might require you to have. Here are the most common reserves requirements:

  • 6 months of interest payments in an account. They want to be sure if anything comes up, you’ll have the funds to make those payments.
  • Closing costs. You’re purchasing a property that’s going through a closing agent. You’ll have to pay the costs for that closing agent, plus any lending closing cost.
  • Monthly payments. Loan costs and other “carry costs” will come up monthly for the property while you’re fixing it up. Don’t forget to include these in your budget.
  • Other lender requirements. Every fix and flip lender might have slightly different cost and reserve requirements.

How to Maximize Your Fix and Flip Loans

Remember, if your lender tells you they’ll give you 70% of the ARV, there’s more to the story than that.

Know the actual criteria you need for each flip, and always look for the highest LTV lenders. 70% is the average in the current market, but some lenders can offer closer to 75% or give you 90%+ for the purchase.

Want to be able to compare these costs from multiple lenders at once? Download this free loan analyzer.

Have more questions about fix and flip loans? You can reach out at Info@TheCashFlowCompany.com.

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How to Calculate HELOC LTV (And Other Things To Know)

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Simple facts: how to calculate a HELOC LTV, and more.

The #1 consideration when you start looking for a HELOC is, by a landslide, the loan-to-value.

LTV should be your priority for one simple reason: the more money you can get, the more you can do with real estate investing.

Depending on the property type, you’ll find that your bank or credit union will give you an LTV of somewhere between 70 and 90% in this market. In other markets, they’ve gone up to 100% loan-to-value.

Example of  How To Calculate LTV on a HELOC

Let’s say you own a property worth $400,000. You found a credit union that will give you a 70% LTV on a HELOC to buy an investment property.

Here’s the simple calculation:

$400,000  ×  .70  =  $280,000

So, they’ll allow $280,000 in a HELOC on that property.

If they offered an 80% LTV on the same home, then you’d get a HELOC with $320,000. At 90% LTV, you’d get $360k.

But What Is CLTV?

However, HELOC LTVs are a bit different than typical loans – after all, there’s already a first lien or mortgage on the property.

In this case, they look at a combined loan-to-value (CLTV) instead.

As an example, let’s say that property worth $400,000 has a mortgage that’s $270,000.

So here’s what the credit union will do for a CLTV:

  • They know their 70% LTV would give you $280k.
  • But since you still owe $270k, they’ll subtract that amount from your available LTV.
  • Therefore, you’ll end up with $10,000 for a HELOC.

Maximizing Your LTV

This is why LTV is so important for a HELOC. The higher the LTV, the more available funding you’ll have to put anywhere in your real estate deals.

In our previous example, the 70% LTV only gave you $10k in your HELOC. The same property with an 80% LTV would get $50k. And 90% would leave you with $90,000 to use on a HELOC – even with the mortgage still on the home.

It’s essential to make sure you’re working with an institution that will give you the maximum loan-to-value to get more flexibility in funds.

Read the full article here.

Watch the video here:

https://youtu.be/25VFJx66yZ8

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How to Get the Best HELOC to Buy an Investment Property

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3 things you need to know when you start shopping for a HELOC to buy an investment property.

For 23+ years, we’ve worked with thousands of investors and funded over a billion dollars in loans. Over and over, we find the following to be true:

Real estate investors who are set up right with financing – HELOCs, business credit cards, real private money – are the ones who succeed.

In this post, we’re going to zoom in on using a HELOC to buy an investment property. Here’s what you need to look for to get the best HELOC for your investing needs.

HELOCs – The Basics

A HELOC is a Home Equity Line of Credit. Oversimplified, this means you can get credit from the bank based on how much of your house is paid off.

A few things to note about HELOCs generally:

  • They can be on either your primary residence or your rental properties.
  • Real estate investor can benefit from taking out as many HELOCs on all of their properties as they can.
  • They provide easy, flexible access to funds for all areas of your investing.
  • A HELOC can be used for:
    • Down payments
    • Earnest money
    • Closing costs
    • Carry costs
    • Rehab costs – material, contractors, or other bills
    • Buying a property outright, if the line is large enough

There are a couple rules of thumb we follow and questions you should ask when you start asking banks for a HELOC. Let’s go over the top 3.

1. LTV on a HELOC to Buy an Investment Property

The #1 consideration when you start looking for HELOCs, by a landslide, is the loan-to-value.

LTV should be your priority for one simple reason: the more money you can get, the more you can do with real estate investing.

Depending on the property type, you’ll find that your bank or credit union will give you an LTV of somewhere between 70 and 90% in this market. In other markets, they’ve gone up to 100% loan-to-value.

Example of an LTV on a HELOC

Let’s say you own a property worth $400,000. You found a credit union that will give you a 70% LTV on a HELOC to buy an investment property.

Here’s the simple calculation:

$400,000  ×  .70  =  $280,000

So, they’ll allow $280,000 in a HELOC on that property.

If they offered an 80% LTV on the same home, then you’d get a HELOC with $320,000. At 90% LTV, you’d get $360k.

But What Is CLTV?

However, HELOC LTVs are a bit different than typical loans – after all, there’s already a first lien or mortgage on the property.

In this case, they look at a combined loan-to-value (CLTV) instead.

As an example, let’s say that property worth $400,000 has a mortgage that’s $270,000.

So here’s what the credit union will do for a CLTV:

  • They know their 70% LTV would give you $280k.
  • But since you still owe $270k, they’ll subtract that amount from your available LTV.
  • Therefore, you’ll end up with $10,000 for a HELOC.

Maximizing Your LTV

This is why LTV is so important for a HELOC. The higher the LTV, the more available funding you’ll have to put anywhere in your real estate deals.

In our previous example, the 70% LTV only gave you $10k in your HELOC. The same property with an 80% LTV would get $50k. And 90% would leave you with $90,000 to use on a HELOC – even with the mortgage still on the home.

It’s essential to make sure you’re working with an institution that will give you the maximum loan-to-value to get more flexibility in funds.

2. Draw Period on a HELOC to Buy an Investment Property

The second consideration for a HELOC is the draw period. This is how long you can use it like a line of credit before needing to pay it off.

During this draw period, you can take money out, pay it back, then take it out again, over and over.

Draw Period Options & Refinancing

Most HELOCs come in two different draw periods: either a 5-year or a 10-year. The longer the draw period, the more flexibility you have.

Also, you’re able to refinance a HELOC at any time. We recommend searching for better HELOCs every 1-3 years. If you refinance before your draw period ends, then that period doesn’t matter as much. 

However, we still recommend setting yourself up with the longest draw period available to you. When you need to refinance, but you’re stuck in a down market, you’ll probably get worse terms on your new HELOC. A longer draw period gives you more control over a better refinance.

So, when you start the process of getting a HELOC to buy an investment property, set it up to be long-term. Even if you choose to refinance, you should still look to start with the highest LTV and longest draw period possible.

2. Interest rates for a HELOC to Buy an Investment Property

The third important consideration when looking for a HELOC is the interest rate. In other words: how much will it cost you to borrow from this line of credit?

Typically, HELOCs are based on prime plus a number. That “plus” number is where the banks make the profit. Almost all banks use prime as their starting point, then they add a factor. They add either one, two, or three to prime to determine your rate. 

Locking in a Fixed-Rate

We recommend looking for a fixed rate for more than a year. We’ve been locking people into five-year fixed rates, and a few years ago, we could offer a 10-year fixed.

Adjustable rates can be a little misleading. Some banks might offer you a prime minus 5 just to get you in. It’s a bit like if a credit card gave you 0% interest up-front, then jacked it up once you get comfortable with it.

Banks try this strategy because they know that once you get a HeLOCK, you’re less likely to refinance out and stay with the higher adjusted rate. This is another reason why we think you should always be on the lookout for better HELOCs to refinance into.

More Help on Getting a HELOC to Buy an Investment Property

These are the three main things to ask about when you’re looking for a HELOC for real estate investments:

  1. Loan to value. The most important. You want to maximize what you can get.
  2. Draw period. You want the flexibility of a 5-year or longer draw, but always look to refinance.
  3. Interest rate. You want a fixed rate so you’re safe despite turbulent or declining markets.

Want more information on how to talk to banks when looking for a HELOC to buy an investment property? Download this free checklist.

If you have any other questions, you’re always welcome to reach out at Info@TheCashFlowCompany.com.

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5 Small Loans You Can Use to Help Your Business

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Here are the top 5 small loans we fund to our clients.

Most real estate lenders won’t touch small loans. Anything less than $75,000, and you’ll find many institutions won’t even fund you.

But for the last 23 years, we’ve helped thousands and thousands of investors fund billions of dollars – and one of our specialties is small loans.

We understand the important role smaller loans play in your real estate investing career. Let’s go over 5 types of small loans you might find a need for in your investments.

1. “Finish a Project” Small Loans

The first kind of small loan we fund is what we refer to as a “finish a project” loan.

It’s exactly what it sounds like: you run out of money on a project, and you need a bit more to get it over the finish line.

We help people with:

  • New builds that don’t have the money to finish.
  • Started flips that need a few more thousand dollars to get to market.
  • Rentals that require more capital to get to a rentable state.

We can fund these loans without touching your first mortgage on the property.

2. Small Town Loans

We help a lot of clients from small communities, or who invest in small towns. A lot of properties in these areas are available for less than $75k, so other lenders aren’t interested in funding them.

Just last month, we funded 3 properties like this. The number for each of them broke down like this:

  • Purchase: <$40k
  • Rehab: ~$20k
  • All-in: <$60k
  • ARV: $100k – $110k

There is a lot of money to be made on properties like this, yet most lenders wouldn’t fund this deal.

We don’t care if a property is rural or agricultural. If the numbers make sense, our loan is secure, and there’s money to be made for you, then we’d love to help you with small-town loans.

3. Gap Funding

Another loan we commonly do is gap funding.

Gap funding can cover a lot of different parts of a project. Anytime there’s an expense on an investment project that your primary loan doesn’t cover, a gap loan can come in to save the day.

These loans include:

  • Down payment (usually 20-30%)
  • Rehab costs (especially if your primary lender won’t include that in your LTV)
  • Carry costs (like mortgage payment, insurance, taxes, etc)

If you don’t have (or don’t want to use) your own capital or other lines of credit, we can come in with small loans to fill in these little gaps in your project.

4. Credit Usage Loans

Another popular loan we do is an “Improve Your Credit Score” loan.

Credit usage is a common sore spot for many real estate investors’ credit scores. Maybe you use your personal credit card to fix up your properties and pay it off once your flip sells or refinances.

In the meantime, you’re using up a high percentage of your personal credit limit. This usage negatively impacts your score, which in turn wrecks your chances of getting a great loan for your next project.

Where our loans come in is:

  • You take out a private loan with us.
  • Use those funds to pay off your personal credit cards.
  • Your usage goes down dramatically, improving your score so you can get approved for other loans.

5. Cash Flow Loans

The last of our popular small loans are the type that creates cash flow for your budget.

If you need to make payroll, compensate a contractor, get some extra capital for more growth, or any other business expense, we can provide a loan for that.

In this case, you don’t even need to be a real estate investor. You just need to own a piece of property that we could secure the loan with.

How a Small Loan Works

All of these loans work because you use a current piece of real estate to secure it. Our primary concerns are keeping the loan safe and making you money.

We don’t worry about your credit score, income, or experience levels. As long as they’re secured, we can get you small loans.

Have questions about how these small loans work? Need a smaller loan? Reach out at Info@TheCashFlowCompany.com and we’d love to see how we could help.

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How to Find Out Your Real Estate LTV by Credit Score

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This is how lenders figure out your LTV by credit score…

Credit scores are a major factor in any kind of financing.

When you’re looking for real estate investing loans, credit score determines your down payment/LTV. In a refinance, your amount is also decided by credit score.

Let’s look closer at how lenders decide how much you get.

DSCR & Bridge Loan Interest Rate Credit Box

Lenders each have a credit sheet or credit box that they use for all borrowers.

Here’s an example of a DSCR loan credit box. It shows the maximum LTV a borrower could get depending on their credit score:

Similarly, here’s an example credit box for a bridge loan:

As you can see, a low credit score not only leaves you with a bad interest rate but also a lousy loan-to-value. In the best case, a low score gets you a 10-15% lower LTV, and in the worst case – you’re left with no loan at all.

Example Impact of Credit Score on LTV

Let’s walk through an example. Say we need to either refinance or purchase a property with $300,000.

So, what are our options based on the above credit boxes?

A 625 credit score is about the lowest most lenders will lend to in the current economy. Here’s what we could get for our $300k property:

  • Max loan amount on a DSCR loan: $210,000
  • Max loan amount on a bridge loan: $180,000

A 720 is considered excellent by most lenders. Here are the amounts we’d get from the same lenders on the same property with this score:

  • Max loan amount on a DSCR loan: $255,000
  • Max loan amount on a bridge loan: $225,000

This is up to $45,000 difference in your loan amount based solely on your credit score.

Credit Usage & Real Estate Investing Help

In short: the higher your credit score, the more funding you can receive.

The higher the funding, the lower the amount of the down payment and interest rate costs. Your credit score will always save or cost you money in real estate.

You can find out how credit impacts your rates and or cost here. Additionally, you can get quick ways to increase your score here.

We are here to help you increase your cash flow by using all means to increase the availability of cheap, easy, and quick funding.

Reach out with any questions, and for more on real estate investing, check out our YouTube channel.

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