100 percent loan to value financing on new construction or fix and flips exists. You need a private investor who loans all the money for the purchase of the property and the improvements. It allows you to have none of your money in the deal. The kind of investor who loans all the money wants to be well protected by a high loan to value
What is 100 Percent Loan to Value Financing?
A financial term used by lenders expresses the ratio of a loan to the value of an asset purchased. Called the loan-to-value (LTV) ratio, the term is commonly used by banks and building societies to represent the ratio of the first mortgage loan as a percentage of the total appraised value of the real property.
To find LTV, simply divide the amount you are looking to borrow (or the balance of your existing mortgage) by the total value of the property, then multiply it by 100.
How to Get 100 Percent Loan to Value Financing
What if you don’t have the private investor who funds everything? A hard money lender may provide a second way Banks don’t usually provide 100% financing. Typically, they will only fund 80%. They want the borrower to have some skin in the game. If you don’t have the 20%, how do you get the remainder?
You need to have private investors who have smaller amounts of money to invest. The second group of private investors may be looking for a return on their money that beats the banks. Realize that the hard money lender who loans 80% ends up in the 1st lien position. Your private investor would find themselves in a secondary position. The private investor needs to know he is in the secondary position and has more risk than the bank lender or hard money lender. In the event of a default or you get hit by a bus. The 1st lien investor gets paid off first, and then the secondary lien investor.
The Secret to 100 Percent Loan to Value Financing
One secret to lowering the risk for your investors is to buy properties with a really good loan to value position and plenty of equity in the deal. By doing so, you can assure that both parties get paid. The risk is higher for the private investors, so you pay the private investors well, typically 8% to 12%, depending on the amount of money they lend.
One source of funds for the 20% are IRA and 401K investors who want to participate in real estate but don’t have large reserves to invest. They may only have $20,000 or $50,000, and that’s not enough to do the whole deal.
How to get 100% financing is easy if you have a list of investors who can fund your projects and don’t mind being in the secondary position. If you do your job of delivering high-quality projects with a great loan to value, leaving your investors with plenty of margin for error, they will gladly loan you money for returns of 8% to 12%.
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