Basic Example usually consists of:

• Purchase Price
• Appraised values before and after project values (before work done & after work done) or Quick Sale value
• Down Payment (skin in the game)
• Loan Costs
• Seller Carry back 2nd

All of these mean you will need Equity in the property to get the loan done.

Will the seller need a seller carry in this example if the lender loans 65% of after or appriased value:

Purchase Price                                               600,000

Appraised or Quicksale value                   1,000,000   ltv of 60%

10% Down Payment                                       60,000

Loan Amount of                                                540,000

On this deal the answer would be no.  Because the hard money source is willing to pay up to 65% of after or appraised value.  These loans are always the best but they are very rare. Most hard money sources will go off the contract price for value and not appraised value. Some, there are others out there that still work like this.

Here is how it would look off sales price and with a seller carry instead:

600,000            Purchase Price

600,000             Sales price or contract value

60,000                Seller carry

150,000              Down payment of 25%

390,000              Loan amount at 65%

This is how you would set up the loan if you are getting 65% of purchase price.  So as you can see there is never one way to set up one of these deals.

In this example:

A  purchase of an office building for $5,000,000. The firm needs a new hard money loan for $3,250,000, which is 65% of the property’s quick sale value. This leaves a balance of $1,750,000 to be financed. The firm must put $1,000,000 of its own cash or equity into the purchase (20% minimum borrower investment). The remaining 15% balance is $750,000, which can be financed with a seller carry back or other subordinated 2nd mortgage.

$ 5,000,000 quick sale price
- 3,250,000 hard money loan (65% of appraised value)
1,750,000 balance

1,750,000    balance
- 1,000,000 borrower cash or equity (20% borrower investment)
- 750,000 15% seller carry back or other subordinated 2nd mortgage
$ 0,000,000

Next Example:

A purchase of an apartment building for $8,500,000. He needs a new hard money loan for $5,525,000, which is 65% of the property’s quick sale value. This leaves a balance of $2,975,000 to be financed. The invester must put $1,700,000 of his own cash or equity into the purchase (20% minimum borrower investment). The remaining 15% balance is $1,275,000, which can be financed with a seller carry back .

In order to help this investor qualify for a new hard money loan, the funding source can use a blanket loan. A blanket loan is a single loan over the property to be purchased, and over a second property already owned by the investor, to come up with the 20% minimum investment required of the borrower.

The second property, which the investor already owns, is another apartment building he purchased seven years ago. Today, the quick sale value of this property is $3,500,000, with a balance of $575,000 owed on it. The funding source can blanket a single loan over the apartment house to be purchased, and over the apartment house already owned by the investor.

65% of the $3,500,000 quick sale price is $2,275,000, minus $575,000 to pay off the existing loan on the second property. This leaves the investor with $1,700,000, which can be used for his 20% minimum investment in the purchase of the new property.

1. Apartment building to be purchased by the investor.

$ 8,500,000 quick sale price
- 5,525,000 hard money loan (65% of appraised value)
2,975,000 balance

2,975,000 balance
- 1,700,000 borrower cash or equity (20% borrower investment )
- 1,275,000 15% seller carry back or other subordinated 2nd mortgage
$ 0,000,000

2. Apartment building already owned by the investor.

$ 3,500,000 quick sale price
- 2,275,000 hard money loan (65% of appraised value)
- 575,000 to pay off balance owed on property
$ 1,700,000 to be used for 20% borrower investment in new property

3. Blanket loan over both properties

$ 12,000,000 combined quick sale price of the two properties

$ 7,800,000 new hard money loan (blanket loan
(65% of combined quick sale price)

- 575,000 to pay off loan on old property
- 5,525,000 hard money for new property to be purchased
- 1,700,000 20% borrower investment in the purchase of new property
$ 0,000,000

If you need some help with the deal you are setting up please post or email it to me and i will gladly help you with it.

Thanks every one for visiting my Blog and i hope you have a good christmas 2009 and new year for 2010!