Cash Out Refi based off of appraisal VS. based off income

[Gerald Perez]

Can anyone explain how much LTV can be pulled out of a property based on the potential income of the property?

I understand the Appraisal method but this one I can't really find an answer.

Here is an example below of what numbers look like. 

Scenario-

SFR

PP- $300k

Rehab - $20k

Potential rent - $2500-$2600

ARV - $400k- 420k

[Matthew Crivelli]

Hi Gerald, @Gerald Perez

If you plan on using a DSCR loan to refi out of a rehab loan, I would say max LTV would be 65% or 273k because loan costs can not exceed the monthly/market rent . The ARV you project of 420k vs the $2,600 market rent, this is where the issue lies. Right now current rates on these loan products are around 7% and the main requirement is that the property can cashflow after paying for principal, interest, taxes, and insurance. Let's do some math.

As - is value - 420k 

Estimated Taxes (1% of property value) - $4,200

Estimated Insurance - $2000

Loan amount - $315,000 or 75% LTV

Monthly Principal and interest at 7% = $2095.70

Monthly Taxes & Insurance Escrow - $516.67

Total Payment (PITI) - $2,612.37

Then you take the monthly payment and multiply it by 1.1 or 1.2 (if going through a bank it could be as high as 1.4) 

$2,612.37 X 1.1 = $2,873.60 (this is where the actual rent/ market rent figure would need to be to support a 75% of ARV refi) 

This would force the lender to lower the LTV and if you owe more than that with the original loan you would be forced to sell or come out of pocket to complete the refinance. 

I hope you understand all this lol!