When Mortgage Lender Assumptions Are Just That, Assumptions

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avatar of @scaredycatguide
@scaredycatguide3 months ago
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1 min read

So, working a real estate deal and the big crux of it is what will the property be worth after the repairs are done.

Now, this is always an estimation but these estimations are run off numbers that you come up with based on market comparables (value of nearby properties) or what the lenders pretty much say they are lending on in a specific area.


1 point is a big difference

The deal I'm working on is 5 units so it constitutes "commercial lending" even though it is a residential building. That is just how it works, 5 or more is commercial loans.

When it comes to commercial loans it is less about the comps and more about the capitalization rate.

Cap Rate is simple net operating income divided my value.

Where I'm doing a deal the lender said an 8 cap was pretty standard, but the appraiser apparently thinks a 9 cap is the market.

This means the property will be valued less after the updates have been made in rents and on the building.

This also means the loan I will be able to pull is smaller than expected, which means I will need to have more money than expected tied up in this property.

So, ya know...that is never ideal.

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