We have specialized in hard money loans in California for many years. With the recent revitalization of the real estate market we have seen an uptick in California hard money rehab loans.
When potential clients call us to discuss their rehab or fix and flip scenarios, there are many questions that we get asked. One of the main questions asked has to do with the maximum after repair value (or ARV) we can help them with. In conjunction with this question, potential clients should also be asking about maximum loan to cost for both the project and for the purchase price. These caps all go hand in hand on hard money rehab loans, and it is important to understand the differences between them.
When asking about the maximum ARV on a loan, our standard answer is 65%. We can help put funds together that max out at 65% of the as completed value on most of our California hard money rehab loans. Many other hard money lenders also will go to 65% of ARV, but even though the numbers and ratios sound the same they often times are not. This is where more questions need to be asked.
The first question that must be asked in relation to the maximum ARV on a particular loan is what the maximum loan to cost is. This can be broken down into two questions - the maximum loan to cost on the full project and the maximum loan to cost based on the purchase price.
For a full project, the maximum loan to cost we can usually help with (unless we are working in conjunction with gap funding) is 80-85%. This means that, while the loan may be capped at 65% of the ARV, it is also going to be capped at 80-85% of the total project cost. For example, someone buying a property for $250,000 that needs $50,000 in work with an ARV of $500,000 is still going to need some cash to work with (or a gap funder). 65% of the ARV in this case is $325,000, but the project cost is $300,000, so the loan we put together is typically going to cap out with a client needing to bring in $45-60k (15-20% of the project cost of $300k). If the ARV is high enough, we can help get the full project funded, including an interest reserve so no payments are due for a period of time, a builders control to cover the cost of rehab and all fees paid with this amount of cash (or gap/equity funding) brought to the table.
The second part of this is the maximum loan to cost based on the purchase price. We have no maximum loan to cost based on the purchase price, and this is important to know as it does not cap the loan size at or below the cost of the property. Many hard money rehab lenders in California will cap the maximum loan amount at 100% (or even 80-90%) of the purchase price of the house, which means more cash is going to be needed to close.
For more information on our California hard money loans and rehab lending programs, visit our homepage at acalending.com. If you have a scenario you would like to discuss, or simply would like to clarify what we can help with, please feel free to call us directly at 877 462 3422.