The third way to repay a lender -21

Ownership is shown through the deed, but the way value is shown depends upon the purpose and length of ownership. For residential real
estate, until the property is seasoned (held for a period of time, usually
one year) its value is assumed to be the sum of the acquisition costs
and capital improvements. To increase the value of real estate during
this period, your best option is to make capital improvements using a
rebate strategy. Rebates are an extremely common business practice.
It works like this: you have your contractor charge you his retail prices
for the improvements and give you a “good customer” rebate for some of
the costs. The full retail price is what is used for the value calculation.

After a property is seasoned, the value is most often shown by an
independent appraisal. Hence, one way to increase the value of the real
estate is to get a number of appraisals, and use the best one. Do not
inflate appraisals, simply get a second or third opinion and use the most
favorable one. You can also show the value, much like an appraiser
does, by providing your own market comparables. These are other
houses with similar features that have sold in your area recently.
Once real property is valued, the lender will
only take a portion of that value to determine
the value of the asset as collateral. Typically
their lending limits set this at 70% for real
property. The exception may be your primary
residence.

Your lender doesn’t want to assume the risk
of giving you access to too much of your
collateral’s equity. If you have borrowed 100% of an asset’s value, it costs you nothing to cut your losses and
“walk away” from the asset if you fall upon financial difficulties.
Lenders are willing to increase that risk with your primary residence
because moving from your home is a tougher decision to make.

Rental real estate can also be valued using the income method. There
are locally varying formulas that are used to determine the value of the
property as an income property. The rents can be used to determine
another C—Capacity.