Hard - Money
Hard money loans are often used by real estate investors who need quick access to funding for a property purchase or renovation. Unlike traditional banks, hard money lenders are primarily concerned with the value of the property and the borrower's ability to repay the loan. In this post, we will explore hard money appraisals and why the lender is concerned with before and after repair value.
Before we dive into the details, let's first define what before and after repair value (ARV) means. Before repair value is the estimated value of a property in its current condition, while ARV is the estimated value of the property after renovations have been completed. Hard money lenders are primarily interested in ARV because it determines the potential return on investment (ROI) for the lender.
Hard money lenders typically loan up to a certain percentage of the property's ARV. For example, if the ARV is estimated to be $300,000 and the lender is willing to loan up to 70% of the ARV, the borrower could potentially receive a loan of up to $210,000. This means that the borrower needs to have a solid plan for renovation and be able to demonstrate the property's potential to increase in value.
To determine the ARV, hard money lenders typically hire a licensed appraiser who specializes in evaluating properties for renovation or flip purposes. The appraiser will inspect the property and evaluate the potential value of renovations based on comparable properties in the area. This information is then used to determine the ARV, which is the basis for the loan amount.
It's important to note that hard money loans often come with higher interest rates and fees compared to traditional bank loans. However, they also offer faster access to funding and less stringent approval requirements. As a borrower, it's important to understand the terms of the loan and the potential risks involved.
In conclusion, hard money appraisals are primarily concerned with before and after repair value because it determines the potential ROI for the lender. Borrowers need to have a solid plan for renovation and be able to demonstrate the property's potential to increase in value. By understanding the process and potential risks involved, real estate investors can make informed decisions about using hard money loans for their projects.