How to calculate the numbers
Learn to calculate the numbers on your rehab loans for investment properties, new home construction or any type of real estate investor loan and see the numbers just like we do. Depending on the borrower and the project Loans 4 Investors typically will loan 55-70% LTV based on the ARV.
Requirement for Investment Properties, New Home Constrsuction or Real Estate Investors Loans
First there are 5 key factors that are needed to start the deal evaluation process
1. Purchase price
2. Rehab or new home construction cost
3. Your cash down payment amount
4. Loan term (3-12mo including selling time)
5. ARV (after repair value)
Example of a rehab loan for an investment property:
Purchase Price $ 238,000
Rehab costs $124,000
Cash Down payment $10,000
6 Month loan
Estimated closing cost of 3% and 5 points = 8%
= 380,160 divided by ARV $499,000 = 76% (additional cash or collateral might be needed to stay under 70% LTV)
See details for this example below:
Let’s take the purchase price of $238,000 and the construction costs of $124,000 and add them up, that equals to $362,000 and now subtract the amount of cash in the closing. This will give us a total of $352,000.Now let’s add in the closing costs and the points which will be paid by the project.
In this case, let’s estimate the closing costs at 3% and points at 5 points, for the total points at 8%. By adding this 8%, we now have $380,160, the amount added for closing costs and point added in this case is $28,160. Remember this is paid by the project.
This total of $380,160 is divided by the completed value of $499,000 which gives us our loan to value before interest reserves, in this case 76%. Knowing the need to be at or below 70% Loan to Completed Value that just means in this case we are 6% over in the Loan amount. To determine the dollar amount, just multiply 6.2% of $499,000 when rounded which gives us approximately $31,000.
So in this case, an additional $31,000 cash or qualified cross collateral or subordinate seller carry back could work. Now, let’s go back to our original calculation, we have $380,160 that we need to add $125 annualized interest to for a period of six months. So, let’s add 1% for 6 months which totals 6%.
We come up with a total of $402,963 rounded up, that’s $403,000. This will be our total loan amount assuming cross collateral or subordinate seller carry back is used, the dollar amount would be less if additional cash in is put in.
Alright so now let’s see the project is completed and it sells. Here’s how the numbers will shape out. First, let’s take the $403,000 loan amount and add back in the $10,000 cash in put by the borrower.
This gives us a total of $413,000 then we add the interest paid back to the borrower because remember on our top level programs the borrower gets paid $12% on the cash he puts in, too. The total amount interest paid to the borrower in this case is $242.
By adding this together, it gives us a total project cost of $413,242. Now, let’s take the sale price of $499,000 and subtract our Realtor selling commission of 6%, this gives us estimated net sale price of $469,060.
Now let’s subtract the total project costs of $413,242, for a total of $55,818. This is the total estimated net profit for the project excluding interest already paid to the borrower and lender. This total profit of $55,818 is then split 50-50 for a total of $27,909 each, for an annualized return of investment to the borrower of 560% and annualized return of investment of 25.8% to the lender and you as borrower get paid full going rate by the project for any work completed on the project. And remember in the example the project paid for EVERYTHING! Our programs are very unique and truly help YOU leverage your success!
Each deal of course varies and this is a very general example. Ask for our FREE DEAL ANALYZER and look at the numbers in your deals the same way we do!