Avatar's Blog
» Street Price - Value of Property
You buy a property for $1,000,000 that is valued at $3,000,000. The next month, you ask for a loan of $2,000,000 based on the value of the property. No one is willing to make that loan. Why?
The value of property is a little like the MSRP and 'street cost' on retail products. The appraised value of your property, based on comps in the area, the business permits, use and potential income from it may be one thing. But the 'street price' is, obviously, what you paid for it.
If you are requesting a hard money loan, the lender will use the price you paid for the real estate as the 'value' number in the LTV equation. After you have owned the property for about one year, it will be considered 'seasoned' and a new appraisal may generate more capital for you. However, without any improvements in the property, you may still find yourself with a lower 'value' than you would hope for.
