$$ to purchase at auction

Financing, Hard Money Lenders, Private Money
1

I am new at real estate investing, I found several really good deals that are coming up at auction next month. Are there lenders that will loan you the money to purchase at auction? I am in CA we plan to fix and flip, my partner has really good credit (upper 700’s) any info would be greatly appreciated.

2

I haven’t tried this personally.

My first thought is that I suggest you call a bank and ask them. Any banks you are thinking of doing business with. They’ll tell you in 5 minutes whether they would fund this type of transaction.

My second thought is with auctions, you need to pay the money typically within 24 hours of winning the bid. Most banks I know can’t fund that fast.

I hope this helps.

3

Don’t know specifically about CA, but I’m a regular attendee of SNJ auctions and here:

  1. you need 20% certified funds or cash IMMEDIATELY upon being declared successful bidder
  2. the balance is due 10 days from the auction (the PO has 10 days to redeem the property)
  3. if you don’t pay up at the end of the 10 day period, you lose your deposit

You need your financing lined up before you buy at an auction. If you don’t have the cash available, you might want to look at securing a HELOC you can draw from once you are a successful bidder.

4

thanks, have heard there are hard money lenders that lend at auction, does anyone know of one?

5

I purchased an apartment building for $429k at auction. I put $10k cash down at the time of winning the bid and I have to pay the difference within 30 days. My 30 time limit is up this Wed. In this time frame I have found a HML who will put up the remaining funds for the auction purchase. Within 30 days (from this Wed) I will have the building refinanced through Dollar Bank. I made these refinance arrangements after I won the bid at auction.

I have to pay $30k up front to the HML and then $4k per month as long as I have the loan. The way I’ve structured this I’ll only have to pay for one month before I refi.

It cost me a lot to use the HML, but conventional banks will not lend on auction foreclosures. There is no way for them to perform due diligence on the building which means the only collateral and/or assets they can use if from the borrowers. Unless a family member or close friend owns the bank, you have less than 1% chance to get a conventional loan for auction real estate. Generally speaking, a commercial loan is based 90% on the property and only 10% (if at all) on the borrower. Chances are a property being sold at auction does not have a cash flow or if it does, it’s not enough for a lender to loan against.

GooD Luck! :beer

6

Thanks Matt, was your deal in CA? I’ve never been to an auction before but I understood you had to have all cash at the auction, if I can put a deposit, then I can get it done. I will call the trustee tomorrow.

If anyone knows of a good HML or private investor, I would love the info

thanks for the replies!

Theresa

7

Auctions are different from state to state and even county to county. I’m in Cleveland Ohio and our auction rules state 10% or $10,000 at time of winning the bid, which ever is higher. Then you have 30 days to pay the balance. But some places require a certified check or the full amount of cash at time of purchase.

If you are determined to bid at auctions you really need to do as much due diligence on the property prior to bidding so you have no surprises and you know what the value of the asset will be. Don’t go in and bid your first time there, go every week for a couple of months minimum and learn how it works. You’ll start to notice who the bank reps are and who the regular investors are.

GooD Luck! :beer

8

thanks for your reply Mark, I found 3 that I want to buy, all properties are in CA, one is a 4 bed condo, comps out around 200k, min bid is 6,000, loan number is assessment, so I think its taxes, I spoke with the tenants, they pay 1400 a month and have a lease till June. (Owner told them he took care of it when the NOD was posted) another one is a two story 3/3 house, min bid is $133,500 comps 250-285, another one is 3/2 comps 250, min bid is 55k, I have checked all the homes, they are all in good condition and all have over 100k in equity. I plan to call the trustee tomorrow and see what the procedure is in CA, if I can leave a deposit, my partner has $30k available. If it has to be paid in full (which is what I have heard) then I’m still searching. I have heard there are lenders (HML) that will lend to buy at auction, if anyone knows of one, please let me know, already have a buyer lined up for the the two story and the condo.