cash back at closing?

[Sundance 54]

Kristin, in my opinion the answer is "Yes", its legal to get cash back. However, most lenders have a lower LTV (Loan-to-Value) limit on investment properties than on a primary residence. If the lender is willing to give a 70% LTV on investment properties (assuming the values you stated are really correct) it should work.

You may need to get an "as completed" appraisal, to convince the lender of the future value. Your appraiser can let you know what they need (plans, contractor bids, etc.)  to officially determine the future value.

Once the new value after renovation has been established find a lender who is accustomed to working with investors. The lender's confidence in you may determine how much they are willing to lend. It seems they would definitely lend enough for the rehab if the future value is definietly 80K, but the extra cash may be a question.

If you provide a projected income/cash flow statement to the lender, that might help get the extra money. Show them that the property will support the note. Also, if you give them an idea of how the extra funds will be used (for future investment), a simple business plan of sorts, that should give them a little more confidence in you as a serious investor.

Another possibility might be to do the rehab, proving to the lender that you can follow through and make it happen. Then, do a cash out refinance of the property after completion to get money for further investing. Obviously, you want to make sure that the income from the property will support the new mortgage you'd have after the cash-out refi. This will, of course, cost you more in bank transaction fees than if they will agree to lend it all up front. But, it's a possible plan B.

Hope this helps. My experience has been more with small commercial than residential. In that situation the lender seems as interested in the person who's borrowing as they are the property itself. If they are confident you know what you're doing, it goes a long way to making them feel "safe" about the loan.

[Infowell]

"You may need to get an "as completed" appraisal, to convince the lender of the future value."

There's basically three ways to appraise improved real property; "as is," "as repaired," and "subject to completion per plans & specs."

[premierlender]

I am a broker and this is a very interesting topic....here is my 2 cents worth.
I work with a large conforming national lender that has a program designed exclusively for this purpose: They will lend 95% of the purchase price/ rehab costs/ and closing costs or of the ARV whichever is less. There are some requirements for obtaining this loan but it is an excellent product to use for financing the rehab costs. Feel free to inquire further for additional info on this program.

[DavidSirmons]

In the situation where the seller gives a personal check over to the buyer, how does the seller handle this to avoid having to pay taxes on this money, which is really never kept by them? It seems odd that they would have to. Please let me know asap, as I have this very situation pending right now.

[Rayh78]

No problem for the seller. They can just say they agreed to pay for some improvements for that amount. So they add it to thier other selling expenses which get deducted from the profit they pay tax on.