Posted by Monique on March 13, 2001 at 15:49:15:
John,
You typically get cash for repairs by buying the property for less than 65% of ARV when using hard money.
Example:
ARV: $140,000 (After Repair Value)
Repair Cost: $25,000
Purchase Price: $65,000
Gross Profit: $50,000
*** Net Profit would be less given holding costs, closing costs, realtor commmissions if you list it, etc.
You get hard money loan for 65% of ARV ($91K less closing costs) – enough to pay for the house and do the repairs.
Or, if you really want to pay MORE for the house just to get the deal … you could agree to give your seller some cash now (proceeds from the HEL) and some cash later (a 2nd mortgage that the seller carries).
Example:
ARV: $140,000
Repair Cost: $25,000
Purchase Price: $80,000
Gross Profit: $35,000
You negotiate with your Seller to give him/her $65K now (from the hard money) and hold a $15K 2nd mortgage. Pull out the same $25K for repairs from the hard money loan.
Monique