Why Getting A BPO For Your Deal Upfront Is Very Necessary

[Kyle Ransom]

I recently consulted a fellow small apartment investor about his recent apartment purchase. It was a great fixer upper and he got bank financing to purchase and fix it up. The loan was based on the lender's after repair value through which was not consistent with the market value. It was in fact much lower. Banks tend to be more conservative and based their values on other factors like experience and location among other things and not just the proforma income.

Now, this investor never bothered to get an appraisal done on his own so he really had no way of really confirming the after repair value for this property. All he had was what the bank thought the ARV should be. As a result, he was short some cash to finish the rehab.

So when buying a fixer-upper apartment is really is best to have an appraisal done or at least have one of your broker contacts confirm the value for you upfront. It would be best done when you have the property under contract during your due diligence period. This will help to make sure that you are buying right and can get all the funding needed to complete the project. You will also seem more credible when requesting a loan as it shows that you did your homework. Plus if your lender attempts to knock down the property value you have a legitimate proof otherwise.

Here is another tip, getting a bridge or hard money financing from a lender in the area where your property also helps you get to an after repair value more in line with that local market. Whereas banks tend to be ultra-conservative when it comes to the value of a property. Especially a fixer-upper where you have to use the proforma income and expense to justify it's value.

I hope this helps. Please feel free to comment.