I just wanted to see how you guys are paying for your foreclosure purchases. How many creative ways are out there?
you finance foreclosures by…
Do NOT “board hustle” the forums.
Keith. Not sure what you mean by board hustle. I am just a new investor that is trying to figure out ways to finance foreclosures at and before the auction.
you are right. sorry. i got an email from nancy and i got a bit carried away since i have moved into doing mortgages. my apologies to the group.
This is a good question and I ,too, would like to see some of the answers. Are we board hustling (?) whatever that is…
I have used financing thru a local bank that bases the loan on only a few criteria:
- My creditworthiness and track record with them.
- A dual appraisal (“as is” and “repaired” value.) I usually finance for purchase price with repair costs included.
“Board Hustling” is when people come in the forums to drum up business for themselves or their company…putting the comment “contact me” or putting contact information in the body of your messages are symptoms.
Asking legitiamate questions and providing legitimate answers for information/education purposes is what these forums are for/about…
Minya knew who it was directed at…you didn’t see the parts that I deleted from Minya’s post…I don’t usually say anything in the open forum but was getting no response from Private Messages…
Thanks, Keith. I have been enlightened…
If by foreclosures, you mean buying bank owned (REO) property, you can leave your creativity behind you (at least on you offers).
Banks want a simple straight-forward offer. Cash is best, followed closely by a good pre-qual letter from your lender.
How creative you want to be at obtaining the loan/cash to close it, however, is up to you.
Ok, on this topic I would like a bit more info for my education. Maybe a more pointed question will illicit more exact responses…Maybe not…lol…
What financing option did you use on your first deal? Traditional lending, hard money lender, subject to, etc.
I was thinking of an interest only conventional for a first time flip…Bad idea?
What type of financing that you use, and CAN use, will depend greatly on what type of investing that you are doing.
jk asked about financing a foreclosed property. With it, you have to be pretty conventional with your offer. Cash or approved financing already lined up. How you get that cash or financing can be more creative, if you choose.
Generally speaking, whatever financing that you can line up to get a deal under contract is good financing. If you can get conventional financing, it’s usually the cheapest solution, so it works.
What is the easiest way though to get conventional financing on a foreclosure. The only way I can think of is if you can deal directly with the person in arrears and work out a deal with them directly so you can have access to the house. Other than that I can not think of any lenders who would be willing to lend on a house that they are unable to inspect.
You asked about financing a foreclosure. A foreclosured property has already went through the process and is owned by the bank. There is no more arrears (or people in it) to deal with.
If we’re talking about pre-foreclosures, that’s another matter entirely.
Lenders do not inspect houses, appraisers and inspectors do. If you have a purchase and sell contract on a property, then you should also have the right to have the home appraised/inspected as needed. Lenders will lend based off your credit score and the property value.
If you are dealing with pre-foreclosures, you are going to HAVE to deal with the people in arrears. They still own the house.
jk, it’s okay to be confused at the beginning but we’re struggling with what you’re asking.
First, what state are you in?
There are 4 ways to buy; before the the NOD or lis pendens is filed, after it’s filed and before the auction, at the auction, and after the auction from the bank (i.e. REO).
Here’s some super-abbreviated methods, there are others but hopefully these will get you pointed in a direction to learn more.
If you’re finding owners who want to talk to you and are in default (late on payments) but before anything is recorded or filed, jackpot! You have no competition. Take the property subject-to the debt, do cosmetic fixup, sell quickly…hopefully before the documents are recorded. If it needs a lot of fixup and you’ll have to hold the property for some time then you’ll need a lot more cash to reinstate the loans, do rehab and make the next few loan payments. If you’re not going to sell the property yourself then list it with an agent. Deduct the loan payoffs, commission, and closing costs from the sales proceeds to get your gross profit.
If you’re getting the list from the county recorders office or courthouse then your local foreclosure investment community now knows about it and you’re in for competition. Subject-to is the way to go same as before but now you’ll have a bigger amount to reinstate the loans and time could be an issue.
Buying at the auction is a special skill and involves running the numbers, doing a title search, and if the property is vacant getting in and taking a look, otherwise you’re buying site unseen. Every state has its own rules but in CA we have to have the full bid amount prequalified with the trustee. Sometimes they’ll want to hold the endorsed checks.
Buying from the bank was discussed earlier. All cash is the only way.
So, how to finance these.
#1: Credit cards or cash on hand for the quick flips. Private or Hard money for the junkers.
#2: Same as #1 but more likely you’ll want to use private money investors.
#3: Depends on your state. Here in CA you have to have all the cash in the bank, have the bank draw up a series of checks, and take them down to the auction. Other counties allow you 24 hours to get the money.
#4: Hard money if it’s a junker otherwise it’s go qualify for a conventional loan (if there is such a thing as conventional anymore).
Sorry about that guys. I actually was meaning foreclosures at the auction; that was my bad. I just find it hard to believe that all investors at the auctions are pulling this cash out of their pockets to purchase these properties. I completely understand the different methods to financing pre-foreclosures and REO’s but am still a little unclear about how to finance foreclosures at the auctions. Are most of you guys just building enough liquid assets from other deals to finance these or is there some secret that I am not aware of. Thanks a lot for the advice.
I would not bid using my own cash, too risky and hurts return having it tied up for months while the fixup is going on. Again, it depends on your state. Some states allow you some time to go get a loan. If the time is short then you may have to get hard money which means you’ll need to buy it at 60-70% or less of ARV.
Here in CA we have to have our full bid amount at the auction prequalified with the trustee meaning you just show them to him and he writes down your name and total you can bid. Sometimes they want to hold them or even have them endorsed.
As for where to get the cash, if you must have it all at the auction, you could use an investor. Show him some deals you’ve done and if you don’t have any yet show him a full analysis, top-to-bottom, of one of your competitors. Then ask what he thought of that deal (i.e. making $xx,xxx in a few months)? If he likes it tell him you have a property coming up at auction and would he like to put up the funds for a heafty return. After you buy the property, go get some longer term private lenders to hold the property and cashout your investor so you can go do it again. Rehab the property, sell it, pay off your lenders, pocket the profit. In the meantime you’re finding more properties for your investor to make money on. At some point they won’t want their money back and will push you to keep buying more properties as fast as you can.
I’m located in buffalo,New York and our auctions allow us to provide 10-20% up front with the remaining portion within 30 days. Due to the time and process for conventional loans thats really not much of an option in my opinion. The only option I personally could see would be to:
(a) practice your due dilligence before the auction and obtain a hard money loan to purchase the property (with all holding costs,rehab,etc… included)
(b) refinance to try and obtain the capital for the purchase
(c) obtain private lenders (ie: family,friends, etc.)
(d) Obtain partners and “pool together” cash for the purchase. I personally can’t think of that many more given the short time period to provide the cash.
I’m not sure if you can assign a contract to another investor with an auctioned property, but i surely wouldn’t gamble my deposit if you don’t have someone waiting in the wings for an immediate & DEFINETE sale. I may be missing a number of ways to finance, but from prior experiences auctions are not exactly on my list of preferred buying methods.GOOD LUCK!
how do you know the hard money lender is not a loan shark e.g. what to look for ?
I’m not a HM expert but I know a few here in San Diego and Riverside. If I had to find one all over again I’d go to my local REIA and ask around. There’s usually one that’s part of the club board of directors. I’d also want to talk to 3 of their clients of my choosing, not theirs. If I couldn’t find one there then I’d go to the newspaper and look for the money-to-loan folks.
The numbers are crazy and on the face of it, it looks like loan sharking but it’s worth it on some deals. Like here it’s running about 12% interest only for a 12 months plus 5 points rolled into the loan. The process is pretty straightforward they’ll do their own appraisal, want a personal signature, and won’t loan over 65% of ARV unless you have an additional property to put up as collateral in which case they’ll actually loan 100% or more.
I think getting private money directly from the trust deed investors, which is what a hard money lender does, is better it just takes more effort and managing the paperwork and going to lunch once in awhile to keep them happy and assured that you’re still in-country.