Posted by d.moren on March 06, 2000 at 09:46:40:
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Getting a loan for the Appraised Value - Posted by Brad
Posted by Brad on March 05, 2000 at 18:01:50:
I think that I asked the wrong question earlier. My question is:
I found a 10 unit building with a list price of $250,000. The building was appraised at $375,000 because the area is getting hot and investor are very interested. The Seller is unaware of this and is looking to just get rid of the building. Before I can really raise the rents or go Condo, I must make some improvements to the building. I do not have the cash to do this so I am asking if I can get the loan for the Appraised Value of the property and get the cash back to make the improvements that I want. They are not necessary improvements but needed to get what I want from the property. Are there lenders willing to give the Appraised Value?
Second question: I hear about so many people getting property with No Money Down, how are they doing that?
Shawn
Re: Getting a loan for the Appraised Value - Posted by Ed Garcia
Posted by Ed Garcia on March 06, 2000 at 24:55:33:
Brad,
Jared, below gave you some good advice, but I would like to ad to it.
I thought it interesting what Jared “who obviously is a banker”, had to say.
Most banks do go by appraised value or purchase price, which is ever lower.
So the key here is to find a SMALL bank who will work with you.
They have to compete against the larger banks and this is one area in which they
can compete. But Jared’s advice is valuable because what he is telling you is,
that this can be a negotiable item, where most bankers try to convince you that
it’s carved in stone. I would like to point out what Jared may have missed is that,
it depends on your financial strength, and track record as well.
Another tool I’ve used with banks is (Cross Collateralization).
I now can pledge an additional property as additional security for the bank.
When doing so, I request a release clause after a period of one year.
What this does, is demonstrate to the bank that I’m willing to put my butt on the line.
Brad, Jared gave you some good advice, and I hope he post here more often,
but it’s not advice that can be depended on because you have to find as Jared has stated
an aggressive banker. That in it’s self is a difficult task.
The proper way to go about it, is to start to build a banking relationship now, and
cultivate your banker into being that aggressive banker that you will need for future deals.
The answer is YES, it can be done,
Ed Garcia
Re: Getting a loan for the Appraised Value - Posted by Jared
Posted by Jared on March 05, 2000 at 19:36:45:
You want a Banker’s opinion? It depends. Several issues for your consideration:
- You may find some Banks to be more aggressive than others. The FEDERAL GUIDELINES FOR banks has to do with Appraised Value limitations NOT cost. Lending 100% of cost is a BANK POLICY guideline. Usually banks have a limit of LTV and Loan to Cost. The LTV is more difficult to get changed than Loan to Cost. Find a loan officer who is aggresssive and he/she may be able to get your 100% financing.
- Usually you can find an aggressive real estate bank by just asking around. Everyone knows who it is (if any).
- It’s best to establish a good realtiionship with a loan officer. Find out who has the AUTHORITY to make the decisions, the loan officer or a committee. I did 100% financing on a shopping center for one of my best customers. The LTC was 100% but the LTV was 80%. This would not have been done to just anyone.
- The main reason Banks usually want cash into deals is to prevent the borrower from WALKING if the deal goes bad. Believe it or not, Banks don’t like repossessing property. Cash equity usually ties a person to the deal when the going gets tough (if it does). Of course personal guarantees also “ties” the borrowers to the deal as well.
- It is also a good idea to find out if the appraisal was done by someone on the Bank’s approved list of appraisers. Anyone can shoot holes in an appraisal if it is not done by a reputable appraiser.
- Keep in mind that the aggressivness of the bank depends on the market and the competition. Here in NC, Banks do unbelievable things for good projects and good customers.
Good luck,
Jared
Re: Getting a loan for the Appraised Value - Posted by jared
Posted by jared on March 06, 2000 at 07:20:35:
Good point Ed. Track record and financial condition is key as well. A couple of other things to keep in mind is the amont of contingent liabilities (ie how much debt do you personally have or guaranty) and how much liquidity do you have for a rainy day or interest carry.
Personal Guarantees - Posted by d.moren
Posted by d.moren on March 05, 2000 at 20:54:21:
In your post you said personal guarantees “tie” the borrower to the deal. In lieu of cash equity? What kind of guarantees do you mean. Are such things connected to commercial deals mostly?
Please, fill me in. dennis
Re: Personal Guarantees - Posted by jared
Posted by jared on March 06, 2000 at 07:02:22:
If the borrowing entity is not a person (eg. an LLC), the Bank will want the owners of the LLC to personally guarantee the loan. This is similar to co-signing the note. We see this alot in commericial lending. If loans are made directly to the Owners personally obviously no guarantees are needed. And yes most banks do want both cash equity and personal guarantees on loans. Some situations may allow the guarantess to be waived such as very low LTV or low LTC. (ie 50% or less). This has been my experience at least.
Hope this helps,
Jared