Accpeted offer 25% below market value

[jarrettvaughan]

I have an accepted offer that allows me to purchase a property for about 25% below my estimated appraised value.

I understand that there are no longer 0 down mortgages but since this property will be purchased with 25% equity, does that mean that the bank will not require a down payment. Obviously I will get an appraisal on the property for my own due diligence and for the banks before removing my subjects.

I have a partner who is willing to do some simple and cheap reno`s and qualify for financing for an ownership stake.

Can I put 0 down on the property?

Also, we are thinking of flipping the property with an open 6 month mortgage. If it does not sell, are we able to arrange for long term financing before the end of the 6 month term, or do we have to wait for the entire term? In this scenario we would hold it and rent it as it would cashflow.

 

[RedlineBrett]

Nicely done!

You will have to register financing. Banks lend on what you paid, not what the property is worth. Frustrating I know, but that`s the way it is.

If you are going to flip I`d try and arrange some short term funds for your DP and get away from CMHC fees if possible.

Make sure you get an open variable mortgage that allows you to sell with a minimum payout penalty... likely 3 months interest but at rates of 2.35% it`s not that bad.

Lastly... Double check your numbers. Get some REAL comps from your realtor and verify that 25% margin you have.

 

[tonypeters]

AWESOME job! But Brett is right, the banks will ONLY lend on what you paid for the property. They don`t care how much "equity" you have today. That`s why you need to find some short term (bridge financing) and then re-mortgage after you are registered on title. I have done this MANY times, and it is a GREAT way to preserve your cash and increase your ROI! QUOTE (jarrettvaughan @ Oct 6 2009, 11:29 AM) I have an accepted offer that allows me to purchase a property for about 25% below my estimated appraised value.

I understand that there are no longer 0 down mortgages but since this property will be purchased with 25% equity, does that mean that the bank will not require a down payment. Obviously I will get an appraisal on the property for my own due diligence and for the banks before removing my subjects.

I have a partner who is willing to do some simple and cheap reno`s and qualify for financing for an ownership stake.

Can I put 0 down on the property?

Also, we are thinking of flipping the property with an open 6 month mortgage. If it does not sell, are we able to arrange for long term financing before the end of the 6 month term, or do we have to wait for the entire term? In this scenario we would hold it and rent it as it would cashflow.

 

[invst4profit]

[quote name=`jarrett vaughan` date=`Oct 6 2009, 01:29 PM` post=`67354`]
I have an accepted offer that allows me to purchase a property for about 25% below my estimated appraised value.

Good deal.

What exactly are you basing the "estimated appraised value" on? Be careful if it`s the assessed property tax value as that can be extremely inaccurate. You really need recent local comps on actual sales to be accurate.

 

[Thomas Beyer]

QUOTE (jarrettvaughan @ Oct 6 2009, 10:29 AM) Can I put 0 down on the property?

..
3 options:
1) get a short term 80% LTV mortgage. "V" being the lower of purchase price or appraised value !

Then in 6 to 12 month, get a new 80% LTV mortgage. Then you will likely be able to pull out all cash .. or sell by then.

2) buy with 80% mortgage .. then sell for a profit.

3) buy with a 80% mortgage and get a 2nd mortgage due to higher appraisal

 

[BrianPersaud]

QUOTE (thomasbeyer2000 @ Oct 6 2009, 06:31 PM) 3 options:
1) get a short term 80% LTV mortgage. "V" being the lower of purchase price or appraised value !

Then in 6 to 12 month, get a new 80% LTV mortgage. Then you will likely be able to pull out all cash .. or sell by then.

2) buy with 80% mortgage .. then sell for a profit.

3) buy with a 80% mortgage and get a 2nd mortgage due to higher appraisal


Private guys will eat this up...go for option 1! Garth can you help him out?

 

[RobMacdonald]

Hi Jarrett,

Choose your lender wisely. Many will put a limit on how quickly you can refinance the property based on the appraised value. Some lenders may want to see that you put some improvements into the property and not just an `artificial appreciation`.

You should look for an open mortgage, on a readvancable product. That way you potentially could refinance in just a few months and can avoid the legal fee the second time around.

 

[GarthChapman]

Jarrett, first, as others wrote above, make sure your value is correct first. Spend $300 on an appraisal. Ask for both current and ARV (after repaired value). Very important! I can`t tell you how many times I have seen people buy based on inflated ARV value expectations and ended up losing money - all because they did their own valuation or accepted one from a Realtor they did not have a relationship with instead of putting the proper amount of time and money into establishing true value.

On the financing side - Rob is correct, and I would add to his advice - let your mortgage broker choose your lender wisely for you. Think about this slight twist to Thomas Beyer`s option #1 above - get a LOC (instead of an open mortgage) then do the improvements, then have your mortgage broker get it appraised and arrange your long-term mortgage. I bought and financed quite a few properties in this way and thereby captured the increase in value created by my improvements very quickly. As Rob says, that is getting a bit tougher to do, but a good mortgage broker can still get it done. Because you will be making physical improvements it is actually pretty easy to do an equity take-out mortgage right after completing the improvements.

Hope that helps,

 

[jarrettvaughan]

QUOTE (GarthChapman @ Oct 7 2009, 10:11 AM) Jarrett, first, as others wrote above, make sure your value is correct first. Spend $300 on an appraisal. Ask for both current and ARV (after repaired value). Very important! I can`t tell you how many times I have seen people buy based on inflated ARV value expectations and ended up losing money - all because they did their own valuation or accepted one from a Realtor they did not have a relationship with instead of putting the proper amount of time and money into establishing true value.

On the financing side - Rob is correct, and I would add to his advice - let your mortgage broker choose your lender wisely for you. Think about this slight twist to Thomas Beyer`s option #1 above - get a LOC (instead of an open mortgage) then do the improvements, then have your mortgage broker get it appraised and arrange your long-term mortgage. I bought and financed quite a few properties in this way and thereby captured the increase in value created by my improvements very quickly. As Rob says, that is getting a bit tougher to do, but a good mortgage broker can still get it done. Because you will be making physical improvements it is actually pretty easy to do an equity take-out mortgage right after completing the improvements.

Hope that helps,


Thank you for all the advice. I am in the process of purchasing the property for 27.5% below appraised value (have not removed subjects yet, waiting for financing). I have decided that I will rent it and hold long term as it cashflows very well. I own 2 units in this building already and am very very happy with this buy.

I do have one question for interest sake.

If one can not get financing based on the appraised value rather than the purchase price, does this not present an issue for Rent-To-Own. My understanding was that in a RTO, the tenant is building all this equity with the owner and then buys that house at a `discounted` or below market price, allowing them to get financing on the appraised value. Since one can not get financing based on appraised value, does this mean that the RTO investor must hold the deposits and monthly credits in the bank to actually return to the tenant when they purchases the property?

I am not doing a RTO with this property, rather just trying to fully understand the RTO process.