Standing in a Lenders Shoes: How They Size Up Potential Borrowers For ARV Loans


                      From A Lender’s Eyes

I’ve had the opportunity to speak with many lenders over the last couple months. And I’ve spoken to 3 times as many home flippers.
The nature of the market has created an environment in which there are some amazing deals available.
However, these deals are becoming increasingly more complex with higher purchase prices, larger rehab budgets, and located in more exclusive communities.

This breeds a couple results:
-Lenders are more concerned about the borrowers experience with this business. (have they flipped homes before?!)
-Tighter guidelines, lower LTVs, increased scrutiny over credit, recent accounts, income and assets. (Are they responsible?!)

100% Financing Models
These were designed to offer maximum capital leverage for the professional property flippers who have proven priority examples of buying low, appropriately managing rehab budgets, complete the sale by achieving the target ROI or exceeding it, not once but multiple times.

These preferred investors know their business and they are willing to put their own “skin-in-the-game” which equates to cash, existing assets, or equity; sometimes all of the above.

The lenders don’t want to lend their money to anyone who
A.) Has no risk in the transaction
B.) Has no experience
C.) Has no money in the deal

Wait a minute Greg! Sounds like a catch 22!

It’s true.

You need a loan because you don’t have enough cash.
You can’t get the loan until you can bring enough cash to close.
How do you get the cash to start with?

I can think of a couple ways, wholesaling is one way.
The other way is: something called a Gap Lender.

Most properties don’t qualify for 100% Financing. 
(A simple exercise is: add the acquisition+rehab  then divide that by the ARV) If that exceeds .70, it does not qualify for 100% financing.)








Gap Lenders
-If you are lucky enough to have a relationship with a lender who will loan in 2nd position, this can be used to secure the larger portion of your loan which is the acquisition portion and holding costs (monthly interest-only payments 6-12)
-The Gap Lender will be providing the rehab budget (which is actually held in control) this is an assurance to the 1st trust deed investor that the funds are present to secure the completion of the project if the borrower defaults.
-The Gap Lender will be paying the closing costs (points,escrow,title,processing)
-These are often highly sought-after capital partners.
-They are often impersonated by lenders who have no real intention of lending in 2nd position, they want to see the deal and will try to loan the acquisition portion.


Equity Splits
-The Gap Lenders are heavily rewarded for their risk incurred.
-They earn 50% profit split on the back-end of the deal, interest-only payments, and points.
-With profits in excess of $150k in 6 month time-frames, you can see how it would be attractive.
-The borrowers are professionals, so they are available to secure the best projects with the most upside, they have large cushions built-in for Finance costs, so they happily work with Gap Lenders to secure preferred financing options.
-I’m seeing guys with profits projected to be in excess of $500k, with volume in mind, they want a good capital source that they know can/will fund their next flip. They can afford to give up 50% in exchange for JV capital in quick flip scenarios.


Most borrowers will fit in the 80/80 program, or 80% of the acquisition, 80% of the rehab funds.

This program has borrower participation or skin-in-the-game. You will need to find those funds.

If you are a gap lender, please contact me. I have business for you.

If you are a serious, accomplished flipper and you want a relationship to deliver the largest loans possible for your flips, contact me with your scenario.

Purchase, Refi, or Cash-out

Luxury, Bread & Butter, Cross Collateralized Assets possible | 858-386-0949

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