Frequently Asked Questions
What are some of the must know terms when it comes to leverages in lending, and what do they mean (LTV, ARV, LTC)?
Three of the most common terms when it comes to lending thresholds in real estate include LTV, ARV, & LTC.
LTV = Loan-To-Value. This can also be defined as what a lender is willing to lend on the original purchase price OR As-Is Value. In most instances, the Lender will take the lower of the two & the remaining difference would need to be brought by the buyer/borrower at the time closing.
ARV = After Repair Value. This can also be defined as the estimated value of a property after the assumed scope of work/repairs have been completed. This value is often given on an appraisal, and then evaluated/confirmed by a direct underwriter of the lender to ultimately determine the approved value on which they will lend. As a rule of thumb, it is good to account for the maximum loan amount to be no higher than 75% ARV. This will include the LTV, Renovations, and any other associated costs that can be wrapped into a loan.
LTC = Loan-To-Cost. This can also be defined as the total loan amount divided by total amount paid by the borrower at closing. This is a metric that lenders use to ensure that the borrower has a certain amount of cash in the project at the time of closing, which presumably lowers the lender's risk as well. This percentage varies vastly lender by lender.
All in all, these three terms are very valuable to learn and account for when looking at projects. There are several things that can affect the maximum loan amount as a lot of it is lender dependent, but these are three of the most universally used thresholds in business purpose real estate lending.
What is Advanced Draws vs Reimbursement Draws?
When it comes to your renovation budget, there are typically two methods that a lender will conduct their draw process by: Advanced & Reimbursement Draws. Although not all lenders have Advanced Draws available, it can be extremely valuable to an investor to find a lender that does for several reasons.
The concept of Reimbursement vs. Advanced Draws is fairly straightforward.
Reimbursed Draws is typically where an investor will conduct part of the renovation work with their own proceeds, and then request a draw to be “reimbursed” by the lender for the work that was done. The investor will then likely use those funds to do their next phase of repairs, and then repeat that process until the project is completed.
Advanced Draws is typically where a lender will front part of the renovation budget to the investor so they can complete their first phase of repairs, in which they will then request the next draw once those items are completed. The lender will then again front the next draw, in which the investor will repeat that process until the project is completed.
The draw process does vary lender by lender, as most have specific guidelines & thresholds in place for how they prefer to release their funds. However, Advanced Draws can be very valuable to an investor as it can ultimately prevent them from putting additional cash out of pocket into the project.
What are the benefits of higher leverages?
At Above PAR Capital, we do believe that higher leverages can result in several benefits. With one those being, that the less cash an investor needs to bring to closing the more cash they can set aside for their next project. If an investor intends to do multiple projects at one time, higher leverages can become a positive scaling mechanism for your business.
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What States do you provide services in?
Currently we are able to assist clients in all states outside of: Idaho, North Dakota, South Dakota, Delaware, & Vermont.