Loan for CIP based on Valuation or Purchase Price?

[bonanzawealth]

I heard some stories that CIP loans are based on valuation of the property (NOI/Cap Rate) instead of the purchase price. If that's true, what would the deposit based on? Is it the valuation or purchase price?

Here's some number:
NOI: $50,000
Cap: 8%
Value: $625,000
Owner asking price: $550,000 (maybe he's not aware of the market or you negotiated well )

So what's the deposit of 30% would be based on? is it the $187,500 ($625,000*30%) or $165,000 ($500,000*30%)?

 

[Rolf Latham]

I heard some stories that CIP loans are based on valuation of the property (NOI/Cap Rate) instead of the purchase price. If that's true, what would the deposit based on? Is it the valuation or purchase price?

Here's some number:
NOI: $50,000
Cap: 8%
Value: $625,000
Owner asking price: $550,000 (maybe he's not aware of the market or you negotiated well )

So what's the deposit of 30% would be based on? is it the $187,500 ($625,000*30%) or $165,000 ($500,000*30%)?

vast majority of lenders will apply the "lower of the val or contract".

You might find some alternative options, but id suspect they will cost you

BTW, most NTB comm is 65 not 70



ta
rolf

 

[Aaron_C]

Lower of purchase price or valuation. So that kills it.

 

[Scott No Mates]

Lower of purchase price or valuation. So that kills it.

It doesn't kill the deal, it just lessens the risk. Historically, property trusts (waaaay back when Noah was a kid), were restricted to 60% borrowings, LPTs would be seen as low risk (until some super engineered trusts appeared).

Commercial property is classed as a risky investment due to several factors (ie on the risk return matrix compared to residential property). In order to reduce risk (at least for the lender), a lower level of gearing is required by the lender - coincidentally, it also reduces the owner's risk as well. Sure the downside is that it ties up capital however is that the deal killer?

 

[Aaron_C]

Sure the downside is that it ties up capital however is that the deal killer?

Obviously that's the whole point of the question. The OP thought he can get more leverage for nothing.

 

[Scott No Mates]

Can't even do that in residential