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» How Much Will Avatar Lend for a Purchase?

Posted on 4/25/2005

To determine the number to be associated with the word "Value" in the term "LTV" or "Loan to Value" equation, it is important to understand the concept of 'today's street value'. The short answer for how to determine the value of the property you are about to buy for loan purposes is that 'value' is equal to the price you are about to pay for the property - no more and usually no less.

The reason that Avatar, and other hard money lenders use the purchase price of real estate properties to determine the value for the LTV equation is twofold.

  1. In the event that a loan goes sour, the lender must sell the property quickly. The quick sale value of a property is generally at or very near the price it sold for within the past 1-2 years if it has been sold. Everyone buys property at a good price. No one wants to pay more than the appraised value. Appraised values take into account finding a buyer who really has excellent use for the property and may take up to 1-5 years to locate. A quick sale is likely to bring what the property just sold for - what you are paying for it today.
  2. For hard money lenders to put their money on the line for a loan, they like to see that all the players in a project have some real cash 'at risk'. The lender, Avatar or another hard money lender, generally has 65% of the purchase price at risk. The borrower must have at least 20% of personal capital at risk. The balance can come from another loan, such as a seller carry back or other subordinated loan. This reduces the likelihood of having the buyer drop off the keys in the event of a 'bump in the road'. Buyers with cash at risk work harder to make a project successful.
Posted in Miscellaneous