I have been offered the opportunity to purchase bulk REO properties (both commercial and residential) in Southern California at 55 cents on the dollar - minimum 5mil purchase. What might I expect to find from hard money lenders in this scenario? Matt
While HML is primarily made against an asset - there is some consideration made to the borrower. If you have done several purchases and performed on them, you’ll get better terms than if you haven’t. Especially, in this case, for a big transaction, they’ll look at the assets, but they will also look at you. If you’ve never done a $2-10mil loan before - they will wonder if you have ther chops to pull this off profitably.
Also, it will depend some on what you are you doing. Are you simply purchasing to resale on the wholesale market? That will take an intense marketing campaign to get everything sold off before the loan terms eat out all of your profit. Rehab and sell to retail? If rehab - doing 5-20 rehab properties at once is a hell of an operation.
So at least the first deal will pobably be for tougher terms - more origination points, higher interest, lower LTV and possibly a higher requirement that you have some personal funds available as reserve. But if you have a strong exit strategy, well thought out, then they’ll feel better about it - which will translate into better terms for you.
Some of the lenders can probably weigh in with more accurate info, but I wouldn’t be surprised if you get hit with 6 points, 60% LTV and 18% if you haven’t done multiple batch sales like this before. After you’ve proven you can turn them over, your subsequent loans would likely get better.
But this is just talk. The best thing to do is start contacting HMLs directly. Tell the what you have simmering and see what they have available. Also hit up smaller banks and see if they have any programs that might work out. You’d be surprised - many of the small local banks have some of the best financing programs from anywhere right now.
Thanks for the advice.
What I have heard back from one HML is that they would want 5% down regardless of the LTV spread as well as proof of funds for 10-12 months. In general, I am finding brokers who are getting bulk deals at perhaps 50-55 cents on the dollar (some claim less) while individual properties can be had for 65-70 cents on the dollar. Of course, as you pointed out, the exit strategy is crucial and it is difficult to know what properties will sell for as all these bulk purchases find their way to the open market.
Any other opinions/advice would be welcomed. Matt
Don’t just talk to one HML. Every HML is different and will do many things differently. There are several HMLs that should finance the sort of deal you are talking about with nothing down - assuming that your are getting the properties at enough of a discount from ARV. Talk to a bunch of them - see what they can offer you.
New to the board. I work in the time frame of sheriff sale to the end of the redemption. I would like to purchase an assignment of the junior lien holders but I’m having trouble contacting the correct department or person when it come to larger banks. Any insight?