Buying Foreclosures, Fixing Them, And Selling Them
I would like to Purchase Foreclosures and Pre-Foreclosures using hard money lenders. Get a big enough loan to do any repairs and sell to my network of investors who would like to build a portfolio of properties for a rental income.
Is it hard to purchase properties pre-foreclosures and foreclosures with hard money lenders? Seeing as though im starting with ok credit and little cash. Also do hard money lenders work well with corporations who have established credit?
First it is easier to get a HML than it is to find a good property. Hardmoney lenders use the equity in the house and they use they house as the gaurantee that the loan will be paid off or they just take the house. That don't care about your credit so it want build your credit, I don't pull your credit nor do I report you to them.
Most HML will lend up to 65% - 70% ARV (After Repair Value) on the home, closing cost, and rehab cost, anything over that will have to come out of your pocket. Most will also require you to do the first set of repairs out of your own pocket and refund you the money when work is verified. I know HML that lend in the millions, many do not like to lend less that 100k, because under that amount there is less room for errors and they do not gamble with their money. The most important thing is the numbers.
Purchase Price
Closing Cost
Rehab Cost
Hold Cost
Marketing Cost
Sales Cost
All the above need to be under the magic 65% LTV if they are and you used conservative numbers, and budgeted your rehab correctly there will not be a problem getting a loan from a HML.
Thanks!
That helped alot. Really. I figured it worked like that from what ive read and heard from others. Although its good to hear second opinions especially from someone in another state. Thanks!
Can you direct me to a good HML that lends in any state?[ Edited by SofreeInc on Date 08/02/2004 ]
Sammy,
Thanks for the HML formula. I am in NYC and was wondering if you have a list of lenders that do business in my town. I would be interested in getting the particulars from them and keeping their info in my "action" folder once a viable property is on the table.
Good Heavens, now why would you want to deal with Hard Money Lenders that only lend up to 65%? I mean really like dating a girl who goes home after a good night peck on the cheek.
Guys, and you too girls. The purpose of cultivating hard money lenders is for their money. If you had enough you would not need them. So you build a very good relationship and you impress them with your ability to take a property and fix it up and make it a thing of great beauty and worth.
You should work on your lenders until they will lend you whatever it is that you require. The proper amount is enough to do the job and carry you also while all these things are going on. If it takes 120% of the buy, and fix, and support you ,why so be it.
You can either work on a fixed return or you can work on participation. I always worked on a fixed return. That way no whinning in three languages, no wringing of hands and no crying.
An Example: There is this dumb beaten up three story mixed use building. lst floor retail and empty, second floor an apartment and oh my god looks like a refuge for homeless children and dogs, the third floor is vacant but loaded with more junk then the local dump.
But, Ah the great But; There is a little revival going in the area. A nice little coffee shop opened up three doors away. There is a Boutique about to open its doors also about four doors away on the other side. The muggers in the area have become civilized, they say please. Some even return the small change. Yes you get to keep your shoes. A whole new world is happening. You see it. Repeat, You See It!
You will stick a small smart little modernistic furniture store in the ground floor. Percentage Lease small guarantee to start.
The guy that pours coffee in the new coffee shop will rent the second floor. The third floor, you will insert a new header or two and lots of windows, they will be slightly slanted. Why, hell I don't know its a modern thing go ask LeCorbusier or dear Mies, or get bombed and go back in time to Barcelona 1929 and see all the new freeky stuff on which is based this new trend of Modernism which is sweeping the world.
A would be wanna be painter with wealthy disparing parents will rent this lofty looking space for him to live and paint, and, best part, throw great parties with masses of strange beautiful freeked out ladies that for some strange reason hang around artistic types..
Now thats your plan. You borrow the money from your Hard Money Lender you promise him a fixed return on his money and it all comes back in say six months time. He writes you a check you give him your note and on it you write, 'Secured by all the assets real or personal of YOUR Name.' Come on now don't get cute, use your real name. Remember play it straight and word of this wonderous profitable occasion shall flow through the world of lenders like a Dose in a Cheap Knock Shop. oops sorry my commoness does show thru.
In any case you do it and you do it well. It's not hard, just spend time on the job and stay on schedule even if you have to spend an occasional evening or sleep over cause you are too tired to go home and the painters done did it wrong.
Its a fun thing. Everybody moves in. The money starts to flow. You settle up with your Hard Money Lender, you might give him a tip or invite him to lunch, or buy him a new pair of shoes or introduce him to your cousin, you know the one that never gets a date cause she giggles all the time, yeah thats her.
Now, at that point, decide if you want to hold on and play 'King of the Castle' and try another one just a little farther down the street, or maybe by this time you open another small little coffee klatcher combine specialty restaurant. Become famous for some form of strange food and the world will beat a path to your door.
I have a freeky friend who did this in an area out here in LaLa land called Silver Lake, very gay very artistic very Boheme. People who didn't know better raved over the food, frankly they should have served a Desert named TUMs avec Alka de la Seltzer!!!
See, thats it. You are the Creative Investor, damned man you are on line you must be thinking Creative. You do not need money, you need a big desire to do this sort of stuff. You are drawn to the magic of color and clean line. Most rehab is basic you try to find a line and accent the hell out of it and make it intrude into the street scene.
Enough, Enough, the maiden cried. You get it? OK go do it. And call me afterwards, I like to talk to rich people.
Cheers your friend pushy Lucius