Tag Archive for: ARV

DSCR: Will You Be Able to Refinance Your BRRRR Property?

DSCR: Will You Be Able to Refinance Your BRRRR Property?

Today we are going to compare and contrast two properties in order to see how the differences can affect your ability to refinance. Here at Hard Money Mike we do a lot of 100% financing for both the purchase as well as the rehab on a BRRRR property. Before jumping into financing, we also make sure that the property will qualify for a long term loan. One thing that you need to keep in mind is that while you may qualify for a rate and term of 75%, the property may not qualify. Let’s take a look at some numbers to see what that means to you and whether or not you will be able to refinance your BRRRR property.

Look ahead to the refinance before purchasing the property!

More and more people buy a property, get it all fixed up, and then expect to refinance it at 75% to 80%. Unfortunately, when they go to refinance they end up hitting a wall. Oftentimes the property doesn’t qualify for a refinance based on the DSCR ratio. We want to go over a quick example to make sure that you know how to run through the numbers before you purchase that BRRRR. 

What do we mean when we say that the property doesn’t qualify?

It is important to remember that the numbers have to break even when using the DSCR ratio. This will to keep the interest rates lower. Just to clarify, breaking even means that your rents equal your expenses. While your property and credit score might qualify because they break even, your property might break even at a lower LTV. Why would this occur and why is this different in different zones? Let’s look at the numbers!

Property has a valuation or ARV of $200K

You are looking for a rate and term at 75%

That would be a loan amount of $150K

$200K x .75 = $150K

You get into a BRRRR and you are all in at $150K

Rate of 7.5% would be $1,050 per month for principle and interest on a DSCR loan

What are the rents for this property in different areas?

It is important to research the rents in the area to make sure that your property will break even. One property might rent for $1400 while another would rent for $1800. We want to find the maximum LTV before you purchase a property to see if the property qualifies. While you need to consider your mortgage payment, there are other factors that you need to consider as well. This includes the taxes, insurance, flood insurance (when applicable), and HOA (when applicable). These amounts all have to be added to your payment before comparing it to the rents. 

Property A Property B
Taxes $1800 $3600
Insurance $1200 $3600
Flood/HOA None $1200
Annual Cost $3000 $8400
Monthly Cost $3000/12 = $250 $8400/12 = $700
Total Monthly Amount $1050 + $250 = $1300 $1050 + $700 = $1750

 In conclusion,

Before you jump into a BRRRR, or before you find out if you can qualify for 100% financing, make sure that the property qualifies. It is important to find out where your rents are, as well as any additional expenses. These numbers will be helpful to see where the property breaks even. Then you so can make sure you can get the money that you are expecting

If you want to make this easy, reach out to us at Hard Money Mike! We are happy to run through the numbers with you to make sure that you’re able to refinance your BRRRR property. 

Watch our most recent video DSCR: Will You Be Able to Refinance Your BRRRR Property? 

How to Quickly Calculate Must-Know Real Estate Numbers

How to Quickly Calculate Must-Know Real Estate Numbers

Today we are going to go over some simple calculations that review what a point is, how to calculate monthly interest, Loan to ARV, and LTV. These are simple things that you will come across when you are talking to lenders about your lending needs. Here at Hard Money Mike we want to make sure that you not only understand what these are, but more importantly we want to show you how to calculate must-know real estate numbers.

What is a Point?

First of all, you are going to hear lenders say that there is a point on this loan, or two points on the loan. What does that mean to you? A point is a percentage of the loan, This is the fee or charge that they have for the loan that you are taking out. You will see anywhere between 1 and 3 points. Meaning that they are charging between 1% (.01) and 3% (.03)  of the loan amount as an origination fee. It is important to know what this amount is because it will not only come out of your pocket, but it will add to your cost at closing.

For Example:

Loan amount is $200K 

Lender charges 1.5 points (1.5% or .015)

$200,000 x .015 = $3,000 origination fee

How do you calculate simple interest and what does that mean for a monthly payment?

If the lender says they are charging 10% (.10), that means that they are charging that amount as an annual rate. As an investor, it is important that you do the calculations in order to determine the monthly interest amount which is based on the loan amount. As an investor it is very helpful to have this broken down into months, because you may only have the property for 6 months instead of a year.  

For Example:

Loan amount $200K

$200,000 x .10 = $20,000 (annual interest amount)

$20,000 ÷ 12 (months in a year) = $1,666.67

$1,666.67 is the monthly interest amount 

Loan to ARV

Most lenders are going to give their maximum loan based on ARV. Just to clarify. ARV is the estimated after repair value for the property once it is all fixed up. It is important to know what the market estimates the property will be worth after all of the work is completed, and are based on current sales in the area. A lot of the lenders are going to give their loan or a loan max based on the ARV. 

For Example:

$400,000 ARV (based on your comps)

Lender maximum loan to ARV is 75% 

$400,000 x .75 = $300,000

$300,000 is the maximum loan amount that the lender is able to lend you.

What is Loan to Value?

A lot of lenders and banks are going to go off of the value of the property as opposed to the after repair value. When they talk about loan to value, lenders will take two things into consideration. They will look at the appraised value or purchase price, whichever is lower. Then they will lend a certain amount based on the current value.

For Example:

Purchase price $300K

Lenders maxim loan is 80%

$300,000 x .80 = $240,000 

$240,000 is the maximum loan amount that the lender is able to lend you.

In conclusion

As an investor it is great to understand what a point is, how to calculate monthly interest, Loan to ARV, and LTV. By learning how to quickly calculate must-know real estate numbers, you will be able to find the loan that best meets your needs.

If you have any questions or would like us to run through some other numbers, contact us

Watch our most recent video to find out more about how to quickly calculate must-know real estate numbers.

After Repair Value (ARV) Explained – Real Estate Investing

After Repair Value (ARV) Explained – Real Estate Investing

What is ARV? 

ARV stands for the After Repair Value, meaning, what the property is worth after it is repaired.To put it another way, ARV is the value that a property could sell or appraise for. 

How is the ARV determined?

ARV is determined by three main factors and subcategories. 


Determine what you will do to improve the property. This would include any upgrades or additions to the property, and the quality of the repairs. 


Research what the comps are for your property. Comps are properties that are just like yours, but finished. It is imperative that comps are the same area (within half a mile), approximately same size, and have a relevant sales date that is within the last 3 to 6 months. 


Are there any concessions? Concessions are when the seller helps the buyer purchase the property. You might contribute 3% to 5%, and this in turn does impact your bottom line.

Why is ARV so important?

ARV is very important because lenders use a percentage of the ARV to determine your loan amount. For example, if your property has an ARV of $200K, and the lender offers 75% of the ARV, then they will lend you $150K. 

How do lenders determine ARV?

Lenders determine the ARV by running comps. Just like you, lenders will compare square footage, the sale date, and the sales price to properties in the area. 

Be honest and realistic!

It is imperative that you are honest and realistic with your numbers. The more truthful you are, the better it is. An honest ARV leads to more deals, more loan approvals, better terms, and More Money!


For more information about ARV’s, watch our most recent clip. 

Contact us to find out more about the Art of Comping and much more! 

Hard Money Vs Banks: Which Lending Option is BEST?

Hard Money Vs Banks: Which Lending Option is BEST?

Investors are always wondering which lending option is best for their needs and when is it better to use hard money instead of banks? Let’s start by identifying what is hard money. Hard money is asset based lending that real estate investors can use when their credit scores are not up to par with bank requirements. Unlike banks, hard money lenders aren’t looking at the credit scores. Instead, they are looking at the project and the property. Today banks are getting tighter and credit score requirements are increasing. As a result there is a decrease in funding. Have no fear! It is still possible to get 100% financing with a credit score below 700. Let’s compare hard money vs banks to determine which option is best for you.

Who uses hard money?

Hard money is for everyone! From the new investor, to those who have 20 years of experience, everyone can benefit from using hard money. Hard money creates flexibility that many banks can not provide. Whether it’s a small deal in a small community, seconds, thirds, or even land, hard money can help you complete any translation that is asset based. As long as the property is good, with a good exit strategy, then you can negotiate to get hard money lending 

What can we do for you at Hard Money Mike?

Here at Hard Money Mike we are able to provide 100% financing on BRRRR and 100% financing on fix and flips, as long as the ARV is good. For clarification, ARV stands for the after repair value. A hard money lender looks at the value of the property and what it can become based on the ARV. That’s another big difference between hard money and banks. It doesn’t matter when you go to a bank, or what kind of a deal you are getting. Banks will only focus on the LTV or loan to value amount.

Let’s look at an example of hard money vs banks:


Property purchase $300K

ARV 600K

Hard Money As a hard money lender, I would feel comfortable lending up to 100% on the deal because it’s a great deal.
Hard money is better than banks when you are basing it on ARV
Banks  If you go to a bank, they will compare the ARV and the purchase price and determine which is lower. In this example, the banks would base their decision on the 300K purchase price. 
From that base amount of 300K, the bank will then require you to put in 20% to 25%.

When you are deciding between hard money and banks, always remember that hard money is best when you have good deals based on the ARV, and when you don’t want to put a lot of money in. This is also true for BRRRR, if you want to find that undervalued property and use a hard money lender to fund 100% of the rehab. Once again, if it’s a good deal based on the ARV in this market at 70% to 75%, and you can refinance it, then hard money has the flexibility that you need. 

Credit score requirements and limitations.

Most hard money lenders do not look at your credit score to make their decision. Instead, they might look at your score to make sure that you are paying, not in bankruptcy, and not in foreclosure. However, hard money lenders will not be concerned by high usage or low scores. These values are not a big deal for hard money lenders. Most importantly, hard money lenders will not kick you out the door because you have a 679 credit score instead of a 680. 

You don’t need to fit into a box.

While banks often have slightly lower rates and longer term options than hard money lenders, banks want you to fit into their box in order to lend. Whether that is meeting their credit score requirements, income requirements, or their coverage ratios, banks do not have the same flexibility as hard money lenders. Flexibility and uniqueness is where you go for your hard money lending. Especially if the property is based on ARV and the value is there. 

3 instances where you should use hard money over banks 

  1. If you want to base your lending off of ARV and have a good deal. 
  2. If you have a credit score that does not hit into the 700s. 
  3. If your income just started or you aren’t 2 years out. 
  4. If you just write everything off. 

What do you need to look for in a hard money lender?

It is imperative that you get a hard money lender who is flexible enough to do your deals when you have a good deal. What is a good deal? A good deal is dependent on whether or not the market is good in the area, if you have a good exit strategy, and a great LTV. Another important factor to consider is if you have a bridge or a lender set up on the other side. Hard money lenders are not looking for deals that are 100% financing with 100% LTV. 

Where do you find hard money lenders?

1. A local person or company

This is a local person or company who is lending true hard money. Make sure that they are well established and have a web presence before diving in. Wall Street has taken over the big loans and only accepts investors who can fit into their box. Hard money on the other hand has no box! It provides the flexibility to fit any investor no matter what the deal. 

2. Real estate groups: 

Connect with the investors in your real estate group. They all know some hard money people who they have worked with in the past. This is especially true if they’ve been in this business for more than three years. By connecting with people in the community, you will find hard money lenders who are reliable.

3. Real estate forums: 

Real estate forums are an excellent place to go and ask questions to find out who the hard money lenders are in your area. There is always a need for hard money in real estate investing. 

What do you look for and what questions should you ask?

First and foremost don’t get involved with a hard money lender who has a lot of up front fees. Some may ask for $1,000 to $5,000 down. Don’t go down that path, because they are just collecting fees, not helping investors. Instead, look for people who have experience within your real estate groups and forums. Do your own research to make sure they are funding deals and have some flexibility with their lending. Whether it is a cross lien, second, or even commercial property. It is also important to ask what they will and won’t lend on. Finally, it is important to start working with them and building that bridge. This will help you in the future if you have another deal that needs hard money lending.

Watch our most recent video to find out more about Hard Money vs Banks to discover which lending option is right for you.

We are here to help you with your hard money needs here at Hard Money Mike. Contact us today to find out more.

What Makes a Good Real Estate Investment for Lenders?

As an investor, you should know what your lender is looking for when they’re looking for a good real estate investment. 

Recently, we discussed the 15% rule and why that 70–75% ARV is so important to ensure a profit on your deals. 

We want to make sure you’re prepared for all the ins and outs of real estate investing so you’re not surprised by any fees or payments. 

Part of that is understanding what a good deal looks like from the lender’s perspective.

What is Your Lender Looking For?

When we look at deals, we’re looking to fund 70–75% of the ARV. The final 25–30% are taken up with your profits, closing costs, and other fees.

However, when determining our numbers, there are three things we look at:

  • Purchase Price
  • Selling Price (ARV)
  • Rehab Costs

These three elements and the way the numbers balance between them tell us a lot about a property and an investor.

If an investor is looking for an ARV of $200,000, then we’re going to look at the moving pieces under the rehab proposal to make sure that’s a reasonable ask. 

Additionally, a $200,000 market is very different from a $1M market, and your lender wants to make sure all the numbers and features of the property line up for the target market.

As lenders, we also want to know that you understand the relationship between how much you’re going to need, how much we’ll lend, and how much you’ll sell for. Understanding all of this is critical if you want to be profitable.

Returning to our example, here’s where the numbers stand:

  • Purchase Price
  • Selling Price (ARV): $200,000
  • Rehab Costs: $30,000

75% of the ARV would be $150,000, the maximum loan most lenders will offer. 

When your lender looks at a deal like the one above, we want to see a purchase price of no more than $120,000. Combined with the rehab costs, that maxes out that $150,000 loan. Any higher than that, and it will be very difficult for you as an investor to turn a profit.

An unprofitable deal for an investor is a risky deal for a lender.

Of course you could dip into your profit margin and spend more. However, protecting that 15% is what lets you keep going in the real estate game. 

So What’s a Good Real Estate Investment?

A good deal is one where you put all these numbers together and prove that you’re going to make a profit.

Show your lender that you understand what it takes to bring this property up to the market conditions required for your ARV.

Especially if you’re a new investor, don’t feel pressured to take risks. It’s always better to do fewer deals if that’s what it takes to protect your profit margins.

Where We Come In…

We understand that numbers sometimes get confusing. But that’s why we’re here. We’re always happy to run through these numbers so that you understand your project before approaching a lender.

We also have free resources that can help you learn more about your investment options.

If you have any questions, reach out to us at Info@HardMoneyMike.com or fill out a contact card.

Happy investing!

What Is ARV? (And How Does It Impact Real Estate Deals?)

How does value-add property investing work? And what is ARV?

After-repair value (or ARV) is one of the biggest concepts used in real estate investing.

Let’s talk about what ARV is and how to calculate it.

Value-Add Real Estate Investing

The type of real estate investing we specialize in involves value-add properties.

This means you buy properties at a lower price, change them in some way, then sell for more. This could look like:

  • Splitting up a rental into multiple units
  • Adding a bedroom
  • Doing needed repairs and renovations
  • Etc.

The property’s value at the end of your project will be more than the price you originally bought it for.

That higher ending value is referred to as the after-repair value. This value is decided by either: 1) what it can sell for on the open market, or 2) what it will appraise for (if you’re going to hold the unit as a rental).

How to Estimate ARV

All of the financials of a value-add real estate investment are dependent on the ARV. How do we decide the ARV number? Well, it’s really just an educated guess. Let’s go over some of the key factors used in estimating an after-repair value.

The Amount of Work and Quality of Work

The work you put into a property is what adds the value. So, how you’re changing the property is a good indicator of the ARV.

For example, adding a bedroom or granite countertops will impact the future value more than just a fresh coat of paint.

However, the planned work can’t be the only thing ARV is based on. After all, you can’t guarantee the quality of work will really turn out to be worth it. So there’s another important factor in estimating ARV.

Comparing to Similar Properties

To make our estimate slightly more accurate, we’re going to look at properties that are just like yours but finished. Here are the criteria you’ll use to calculate ARV with comps:

  • The same subdivision. Comp properties, at most, should be within a half mile of your property.
  • The same size. What’s the square footage? Don’t compare a 1,200-square foot place to a 2,000-square foot place.
  • The same condition. What will your property look like when it’s finished? Look at other properties that already look like that.
  • Sold within the last 3-6 months. It’s not accurate to use the list price for a property that hasn’t sold yet. You can only guarantee the actual value of a property when it’s been purchased in your market.
  • Sold without concessions. Concessions mean the seller is helping the buyer purchase the property. Some sellers will contribute anywhere between 3% and 6% of the sale price to help the buyer cover closing costs (especially in a FHA or VA market). This is important to watch out for in comps, because if a house sold for $200k with a 5% seller concession, then the seller was really only able to sell if for $190k.

Market Conditions

We usually have a ballpark idea of what the market will look like in the next 6 or so months. This is important to factor into your ARV.

For example, 2022 saw a market decline after May. So, if you were comping out a property in June of 2022, you’re expecting the market to get worse, so you factor that in. Maybe you take another 5-10% off the ARV you calculated based on comps to set a realistic expectation for the future market.

Why Is ARV So Important?

When you’re calculating the ARV of the property, remember to be truthful with yourself. Work with comps to get a full picture of your actual after-repair value. Fudging these numbers only hurts you.

ARV has a direct impact on the amount you can get from a lender. Accurate after-repair value is important to your investing financials. You can read about how ARV affects LTV here.

You can also use this free tool to calculate your lendable amount on a property based on ARV.

As always, reach out to Info@HardMoneyMike.com with any questions.

Happy Investing.

70 Percent ARV: Why Can’t I Get More for My Real Estate Deal?

The real reason your fix and flip lender won’t give you more than 70% ARV…

One thing new investors ask all the time:

Why do lenders only lend 70 or 75%?

Let’s go over the numbers and see how lenders come up with that 70% number.

What Is ARV and the 70% Rule?

The number we’re talking about is what percentage of the after-repair value (ARV) a lender will give you.

The ARV is what you can sell a property for after flipping, or what it can be appraised for on a refinance for a BRRRR rental.

Here’s an example of what a 70% ARV might look like:

You buy a property. The market shows it will sell for $200k after it’s fixed up. If your lender offers 70% of the ARV, that’s the maximum amount your loan could be. In this case, 70% of $200k is $140k. So you can get up to $140,000 as a loan when you buy this property.

So that’s $60k worth of value that’s not being covered. This is where investors ask the question… There’s still a lot of money here. Why can’t I borrow against that extra $60,000?

Let’s dive into why lenders stop at 70%.

Why Do Lenders Stop at 70% ARV?

If lenders stop at 70% of the ARV, what happens to the remaining 30%?


First, is profit for you. Why do you invest in real estate? Because you want to make a profit. And if you don’t factor in profit at the beginning of your deal, there’s not going to be any leftover for you.

So as lenders, we build in a 10-15% profit margin for you. Let’s say on average, it’s 12.5%. That amount comes from the 30% of the ARV not covered by your loan. 

In our example $200k property from earlier, 12.5% is $25,000, which will be profit for you at the end of the project.


There are a few other people involved in this process, especially on the selling side.

When you bring in a realtor, you can expect to say anywhere between 4.8% and 6%. To keep it easy, we usually estimate 5%.

So of your ARV, we’ve already taken up 17.5% between your profit and your realtor.

Closing Costs, Cost of Funds, and More with a 70% ARV

Closing costs vary, but it’s safe to assume they will cost 1.5%.

With all the costs so far, we could be looking at anywhere between 17% and 22%, but an average of 19% total.

After you’ve purchased the property and started fixing it up, there will be more costs. Two major areas that should be factored into your budget are interest on your loan and a general overage budget.

Between these extra costs, we’re sitting at an average of 29%…

Which is exactly why lenders leave 30% of the ARV off of the loan they give you.

Making Sense of a 70% ARV

With real estate investing, the money’s in the money. Understanding and feeling comfortable with the numbers is the fastest way to start getting into great deals.

You don’t want to get into a deal that won’t be profitable for you. If you won’t get at least 10-15% profit, why do it? Your lender should leave space for your profit and other costs that come up.

Have questions or a deal where you need help with the numbers? Contact us at Info@HardMoneyMike.com, and we’d love to see how we can help.

You can also get more resources about real estate investing on our YouTube channel.

Happy Investing.

70% ARV: The Hard Money Trick That Could Cost You

When a hard money lender tells you they’ll give you 70% ARV, what does that really mean?

Hard money lenders often say they lend up to 70% or 75% of the after-repair value (ARV) of a property.

Did you know that’s often misleading?

When private lenders (big hard money lenders backed by Wall Street funds) say they lend up to 70% of the ARV, there’s a slight trick that some borrowers miss.

Let’s go over the differences that “70% ARV” might mean for different lenders, so you can maximize your LTV.

The Full Cost of Your Flip

One thing to remember when you’re looking at fixed and flip loans: there are a lot of other costs besides the down payment. You’ll also have closing costs, points, interest, insurance, and other expenses not included in the amount most lenders give you.

We want to make sure we minimize how much comes out of your pocket so you can do more deals or at least get to that first deal.

The 70% Myth

Typically, most lenders in this market will lend you up to 70% of the after-repair value. This ARV is what you’ll be able to sell a property for (not buy it for). It’s how much it should be worth after it’s fixed up.

But here’s the caveat big hedge fund hard money lenders have:

That total 70% of the ARV is split between the purchase price and rehab. And typically, they’ll do 100% of rehab costs but limit the purchase price to 85%.

And this is for their best clients. You’ll see these LTVs cut, depending on your quality, the size of your market, and the location of your property. Smaller markets can go down to 80/90 for purchase price/rehab. Rural properties could go down to 65% overall – if they’ll even lend to you at all.

So the 70% is only for the best properties in the best areas. Let’s dive in and find out exactly how they don’t get to that 70% that they promise you.

Example of the 70% ARV Myth

Let’s look at a property that has an ARV of $200,000. This is what you think you’re going to sell it for, based on the comps.

If our hard money lender is going to give us 70% of it, that’s $140,000 max.

This works for most deals. As long as you follow these budgeting guidelines:

  • Real estate agent: 5%
  • Lender fees: 8%
  • Closing costs: 2%
  • Profit: 15%

Now, let’s say you’re purchasing a property for $120,000 and you’re going to put $20,000 into rehab. This gets you right to the $140k your lender will give you.

But now we got to remember one thing:

Best case, they’re only going to lend you 85% of the purchase price. In this case, that’s only $102,000. (They’ll still cover 100% of the rehab in escrow). 

This leaves $18,000 you’ll be paying for out-of-pocket. Plus, many of these lenders require 6 months’ worth of reserves (we’ve even given short-term loans to investors just so they had enough reserves to get a loan from one of these other larger hard money lenders).

Hard Money Lenders With a True 70% ARV

A smaller, local hard money lender like Hard Money Mike has a different approach to LTVs. Let’s walk through this example with the same $200,000 ARV property.

When we lend 70% of the ARV, that’s a true $140,000 for the right client and deal. This means the purchase is fully funded – plus you get the $20,000 in escrow for rehab costs.

Finding the Right Hard Money Loans

The offer from the bigger lenders will be right for some people. But if you want to maximize your leverage, small hard money lenders like Hard Money Mike give you an alternative.

Want to see if we have the right loans for your project? Reach out to us at Info@HardMoneyMike.com.

Happy Investing.

Text: "ARV & Comps: How to profit on your real estate investments"

What Does ARV Mean in Real Estate Investing?

To profit in real estate investing, you’ll need to know: What does ARV mean?

Real Estate Investing: What Does ARV Mean?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market.

What Are Comps?

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. Similarly, compare a 2-bedroom, 1-bath house to houses of the same specifications – not to 4-bedroom, 2-bath homes.

How To Get an Accurate ARV

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

What Does ARV Mean for Profit in Real Estate Investing?

Estimated profit is what you expect to make on the transaction between:

  • buying the property
  • fixing it up
  • selling it again.

Additionally, equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by:

  • buying properties with a low purchase price and a high ARV
  • successfully refinancing after a flip
  • paying down the mortgage with rent income.

If you want to find the true profitability of a deal, then use your ARV and comparables:

ARV – (Purchase Price + Budget) = Profit Amount

Read the full article here.

Watch the video here:


Text: "Hard Money Numbers Know the Basics"

Hard Money Loans – Know the Basics

As a beginner investor, you need to know the basics about hard money loans.

The two most basic hard money answers you need are:

  1. What’s the difference between loan-to-value and ARV?
  2. How do you calculate them?

Know the Basics: Loan-to-Value

Firstly, what’s Loan-to-Value? Loan-to-value, or LTV, involves the:

  • appraised value of a property
  • as it sits right now
  • with nothing changed about it.

As a real estate investor, if a property costs $100,000 as it sits, you know you’re going to put work into it and make it worth more. But that as-is value, the $100,000, is what lenders base their loan amount on.

Know the Basics: After Repair Value

Secondly is After Repair Value. After repair value (ARV) is used more by hard money lenders and the real estate investment world. Banks and traditional lenders more often use LTV.

Because in real estate investing, we’re basing our numbers on what you can do to the property. What can the value be once you fix it up? That’s the number that determines profit, so that number is more important for hard money lenders.

ARV is the target value of what the house will be worth after all your renovations. This ARV should always be higher than the current price of the house when you buy it.

Calculating ARV and LTV for Hard Money Loans

Let’s say you found an undermarket property that’s selling for $100,000. If a lender says, “We’ll loan you 75%,” that could mean two things, and you’ll want to know the difference.

First, if they’re a bank, they’re likely talking about 75% of the value. In this example, that would be:

$100,000  ×  75%  =  $75,000 loan

Hard money lenders will care more about the value of the home after repairs, so they go off ARV. If they loan you 75%, that would be:

$150,000  ×  75%  =  $112,500 loan

If a loan is based on ARV, lenders might want to know – what are you doing to the property? Different renovations will affect the value of the property in different ways. What you will do and the quality of your work will affect the ARV.

When you know the basics about LTV and ARV, your hard money loans will be much smoother.

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