Hard-money loan?

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Submitted by permabear on December 16, 2010 - 3:00pm

In a previous thread, somebody suggested that to purchase a property at an auction/trustee sale, you could "get a hard-money loan then refi it into a conventional loan after you close."

Is anyone on the board familiar with this process? And who is writing hard-money loans right now?

Thanks.

Submitted by DataAgent on December 16, 2010 - 3:16pm.

Here's a local 'hard money' lender: http://www.source-capital.com/

They are located in Rancho Bernardo. Give them a call and ask your questions.

Submitted by permabear on December 16, 2010 - 3:33pm.

Thanks - but just called them, and they don't do auction loans. They are basically a cash out lender for people that can't qualify with a bank.

Any other leads?

Submitted by DataAgent on December 16, 2010 - 3:41pm.

If they can't help, hard money lenders may not be your answer.

Send Jim the Realtor an email: http://www.bubbleinfo.com/

Explain your situation to Jim. He may have some ideas for you.

Submitted by all on December 16, 2010 - 3:43pm.

Jim the Realtor (bubbleinfo.com) had some posts on the topic several months ago. Contact him.

Submitted by recordsclerk on December 16, 2010 - 3:50pm.

I bought 3 properties at action in the last couple of years. The margins have been really small this year and the amount that you save may not be worth it using a hard money lender. Like the other poster said try JTR, he seems really motivated to work with someone and help them buy at auction.
Good luck.

Submitted by sdrealtor on December 16, 2010 - 3:56pm.

Yes and Jim the Realtor has had how many people actually succeed with his buy on the court house steps program. My guess would be a big fat zero.

I get solicited by hard money guys all day and they are sharks. I will try and PM you a few. They arent giving anything away. 6 pts is common to pay.

Submitted by booter1 on December 16, 2010 - 4:18pm.

I Know this might be slightly OT but does anyone know how to see amount of outstanding loans on property in Riverside County? Thx

Submitted by sdrealtor on December 16, 2010 - 6:22pm.

send me a PM with a property and I can look them up for you

Submitted by permabear on December 16, 2010 - 6:54pm.

sdrealtor wrote:
Yes and Jim the Realtor has had how many people actually succeed with his buy on the court house steps program. My guess would be a big fat zero.

I get solicited by hard money guys all day and they are sharks. I will try and PM you a few. They arent giving anything away. 6 pts is common to pay.

Thanks sdr - should have emailed you first. I did see they want 4-6 pts and 9-19% interest. Ouch is an understatement.

Submitted by sdrealtor on December 16, 2010 - 7:41pm.

I'll find a few and will send them to you. Be forewarned these guys have big dorsal fins on their backs. Its not the interest they charge as you can refinance pretty quickly and be done with that. Its those points that are the killer. All things considered, I think you have to be buying somewhere around 30% below market or more for it to make sense.

As a general statement buying on the courthouse steps is extraordinarily difficult for an owner occupant these days even though they dont need the margin an investor does. Auctions get postponed over and over again so there is no way to know whether a given property will even make it and when. Throw in liens you may not know about, not being able to see the property you are buying and condition issues that can overwhelm you. The investors dont care if the floorplan fits their families needs it is all dollars and cents to them. If they think they can make money....bingo. They just need to be right 60 to 80% of the time and they win big. An owner occupant can get crushed if they are wrong.

With that said if you have an inside track on a property and have been able to see it thoroughly before the auction it could work. You also need cash (or access to it) and the time (or the ability to pay someone who does) to make it all happen. I just dont see it as a realistic course for all but the most ardent players.

Submitted by booter1 on December 16, 2010 - 8:08pm.

Thanks SDR- what is your e-mail?

Submitted by Effective Demand on December 16, 2010 - 8:28pm.

Check out Bruce Norris :
http://www.thenorrisgroup.com/hard_money...

Or ask over at SDCIA:
http://sdcia.websitetoolbox.com/?forum=5...

Best of luck.

Submitted by sdrealtor on December 16, 2010 - 10:40pm.

booter
Just click on my user name and send me a private message if you have a specific question I can help you with.

Submitted by 2009 Buyer on December 17, 2010 - 12:56pm.

This sounds like a bussiness opportunity for piggs - we can self fund auction purchases. Earning 6 to 8 percent on short term loans sounds attractive. And we can allow our members to reap the auction discount and avoid realtor charges.

Please let me know if this concept is interesting to you either on the lending or borrowing side

Submitted by SD Realtor on December 17, 2010 - 1:38pm.

Pretty funny this thread came up. We stopped purchasing at auction back in the slate spring because of the slowdown. In the interim we have decided to become hard money lenders as well. So 2009 Buyer yes this is an opportunity but you are making it sound alot easier then it is in reality. How thorough you want to be in underwriting the loan to someone is a risk assessment you need to make. How you plan to follow through in the case of a deadbeat is another not so fun subject. How much the govt takes of your return along with the overhead of legal and other services is another item. My intention is not to scare you off, just to educate you.

As posted in this thread JTR was trying to come up with a business model to provide a service for buyers to purchase homes at auction. It seems a bit dicey for me and frought with liability but it could work. Basically he will fit hard money lenders with buyers, and help the buyers to find a home through auction. I know first hand the problems of buying at auction and the legwork involved so I am not sure how successful that model works unless the buyer is going to go do alot of work. If the buyer is gonna do all that work then why wouldn't the buyer just do the whole thing themselves.

Bruce Norris from SDCIA has alot of connections with regards to hard money lenders. There is another pig I know who is working on being a hard money lender. I am kind of watching him before I get into it.

The strategy for the hard money lender is to not undertake risk. The return is nice but that doesnt matter to me, the risk mitigation is important. Thus it is my understanding that for purchasing at auction, most hard money lenders will not talk to you unless you are coming in with a substantial nut of your own. So if you want to buy a home at auction for 500k then you better be coming in with 250k before asking for another 250k. Thus if you cannot pay it back the hard money lender will not get caught short when he has to take your home away because you couldn't make payments.

Anyways hard money lending to me seems less risky (right now) then purchasing a home at auction for a flip. Now if you are thinking to purchase at auction for a keeper then that is a different story. Watch out though because if your plans are to purchase as a keeper and then cash out refi in 6 months you better darn well hope you don't get caught in a rate runup or a strong depreciation cycle. Granted it is unlikely even if those happen it would be a knockout punch but it could make your loan payment higher then you anticipated.

Submitted by 2009 Buyer on December 17, 2010 - 2:16pm.

So, are ready to create a pigg "bank" and self fund?

Submitted by SD Realtor on December 17, 2010 - 2:18pm.

No, I am already funded with a couple of other former Piggs.

Submitted by garysears on December 17, 2010 - 6:55pm.

I investigated hard money lending somewhat seriously for myself in early 2010. The quote you need to remember is hard money lenders "loan to own".

That is, hard money lenders expect either to get paid back quickly (thus the high points charged) or they expect to make money by foreclosing and taking your down payment (thus the high down payment). As stated above the risk is mitigated almost entirely by the % down payment required which will be the equity the hard money owner is comfortable having in the property if you can't make the payments.

After my escrow fell through 6 months ago I've been content to wait another 1-2 years to see if the low end prices come back from the tax credit bounce. It is starting to look OK this fall but the spring bounce is right around the corner :(

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