Using Hard Money Loans for Foreclosure Auctions in Florida

Real estate investing is a high-risk opportunity. There is no way to guarantee a profit at the end of a project, especially when dealing with investments at a fair market value. Distressed properties, however, provide the opportunity to secure profits in the front end because their value is significantly diminished, allowing for large gains.  Unfortunately, when dealing with distressed properties, like foreclosures, there is the potential for hidden problems. When securing these properties through auction, the issues become inherited. 

Despite the risks, many real estate investors still see foreclosure auctions as a significant opportunity, but the availability of financing options also limits that. While investors typically rely on traditional and private funding to bankroll projects, allowing for sustained liquidity, increased leverage, and managing concurrent projects, auctions restrict most financing options, especially those most beneficial to the frequent investor.

Auctions of Foreclosed Properties Do Not Permit Hard Money Loans

A common misunderstanding is that a hard money lender, like HML Solutions, can approve a purchase loan. However, that belief goes against the fundamental and operational principles of hard money lenders. The money we lend is specifically tied to the real estate purchased. It is impossible to provide a loan against the possibility of a client being the winning bid at an auction. To secure a loan against a house purchased at auction, the real estate needs to go through the escrow process.

To limit any potential risks, a private lender will also require title insurance. Title insurance provides the lender insight into the property, allowing them to understand any obligations or financial risks belonging to the property, like liens. Any problems that could jeopardize the lender’s position become caveats to possible loan approval.

Since escrow and title insurance are not available at a foreclosure auction, hard money loans aren’t either. Auctions require all cash.

The Definition of All-Cash Bids

When an auction stipulates “cash offers only,” that does not imply bidders must come to the auction house or site with suitcases full of cash. Instead, an all-cash auction requires bidders come with cashier’s checks. 

A cashier’s check is a bank-backed and funded check, meaning the bidder legitimately has the funds they are bidding with. Before an auction, all bidders are required to show the signed and authenticated cashier’s checks to the auctioneer.

Strategies for Using Hard Money Loans on Foreclosure Auction Properties

It is impossible for a hard money lender to directly fund an auction property. However, there are some options – three specifically – for securing funding after a successful bid.  

  1. Cash out refinance after the auction: Unfortunately, there is no direct way to use hard money loans for auction purchases. However, if an investor has the cash for the bid and purchase, they can use cash out refinancing after the acquisition of the real estate. You can use a hard money loan once the property is yours to re-establish your savings, increasing overall liquidity.
  2. Cash out refinance on existing property: If you already own another piece of real estate, it is possible to obtain a hard money or bridge loan to acquire the funds to purchase an auction property. The loan is not against the foreclosure but the existing ownership property. A private lender, like us, will assess the existing property, and if approved, transfer loan funds into your account. You can then use those funds to bid on and acquire a new property.
  3. REOs listed on auction websites: Finally, there is the possibility that an investor can purchase a bank owned or real estate owned property directly through an auction website. While you will not often find such opportunities, some do exist that allow for the direct purchase of a property that failed to sell at auction. In specific situations, a seller might consider a buyer with other financing options. Hard money loans are often accepted in these rare situations.
    The reason a hard money loan might be favored in these situations is the speed of the transaction. Conventional loans typically come with significant caveats that can slow the approval process and hinder ownership transitions. However, to know if a hard money loan is acceptable for direct purchases through an auction website, you might need to contact a representative directly.

Advantages of Purchasing Through an Auction

Have you ever heard the saying, “you make money when you purchase a property, not when you sell it?” While the sentiment is lost on many amateur real estate investors, more seasoned professionals will understand that a real estate project hold promised value early in the process, but only if you can buy below market value.

Purchasing real estate – residential or commercial – is always a risk, but that risk increases the closer to market value the purchase price is. Think about it: if you buy a house for $190,000 in an area where property values hover around $200,000, your potential profit is limited to $10,000, and that is barring any significant problems with the property. However, if you find a foreclosed property and secure a winning bid at $100,000 in the same area, your potential gains shoot up to $100,000, allowing room for unforeseen problems.

It is the unforeseen problems and the cash-only offers that make auctions such a lucrative opportunity. See, few investors are willing to bid or purchase a property blind, meaning without prior knowledge of history, liens, damage, etc. Even fewer investors have the funds to make all-cash offers and take on the increased risks. Because of these two factors, capable investors can often purchase properties significantly below market value, almost guarantee a backend profit.

Drawbacks To Purchasing Real Estate at a Foreclosure Auction

Buying real estate at auction comes with unavoidable risks. Some of those issues are seen as drawbacks to the process:

  • No inspection
  • “As is” purchase
  • No title insurance
  • Hidden problems (Existing tenants)

Most real estate auctions do not allow on-site or interior inspections. A bidder can drive by the property on their own, looking at the exterior and attempting to assess the structural integrity of the property, but that only provides a limited insight. For example, while the exterior might look tip-top, the inside could be missing essential and expensive elements, like cabinetry, appliances, flooring, etc.

The main problem with purchasing at auction is that once the sale is done, it is final. You inherit the good and the bad. You do not get to request repairs or ask for opt out clauses. The purchase means you have to deal with the problems, and hope they don’t result in a financial loss.

Auction purchases are a gamble. The lack of title insurance means you have no insight into liens, unpaid child support, back taxes, etc. Worst yet, as the winning bid, you are responsible for any debts that transfer with the property.

Beyond debts, you are responsible for dealing with any remaining tenants, squatters, or previous owners if they are still residing in the residence. With any luck, they will leave peacefully with the need for law enforcement.

Risks Versus Reward

Is a foreclosure auction the best place to purchase real estate? There is no denying an auction provides the best chance to increase profit potential through below market acquisition. However, the risks involved do limit the applicant or bidder pool to only those who can afford potential financial losses.

That being said, any investment presents its risks. As an investor, you need to weigh the pros and cons to determine whether the gains outweigh the cons. 

Securing Funds To Encourage Quick Turnaround

One of the most intimidating aspects of auction purchases is the all-cash requirement. Many investors do not have capital available for a cash bid and then construction costs. Thankfully, hard money loans provide a quick solution to cash-strapped investors.

While you cannot use a hard money loan to purchase an auction property, you can use a cash out refinance to quickly re-establish liquidity.  With funds available, you can make any improvements or changes to the property and get it back on the market as a rental or sale to repay the loan and secure your profit.

Advantages of Hard Money Loans Over Conventional Loans for Real Estate Projects

Real estate projects require fast turnovers. Unfortunately, speed is not synonymous with most conventional lenders. There are three reasons most real estate investors work with hard money lenders over traditional options:

  1. Flexibility
  2. Speed
  3. Approval odds

Here at HML Solutions, we pride ourselves on being able to customize solutions for each of our clients. We do not expect every project to fit into a neat little box or adhere to predesigned repayment schedules. We view every loan and client as individual, taking into account project specifics. We do not approve or deny loans merely based on the creditworthiness of the applicant because we place more importance on the property value in question. Because hard money lenders do not adhere to the same stringent regulations as conventional banks, applicants can see rapid approvals, with many receiving funds within a week of approval. 

Are you interested in learning more about how a hard money loan could help you with an auction purchase? Contact an HML Solutions specialist for more information.

The Benefits of Using Hard Money Financing for Commercial Real Estate in Florida

If you are looking to invest in commercial property in the Sunshine State, hard money loans may be your best financing option. While traditional loans have definite advantages, hard money loans are highly accessible and may allow you to close your next deal as soon as possible. Consider a handful of ways hard money financing may benefit you as a commercial real estate investor in Florida.

Quicker Closings

One of the most profitable features of hard money loans is the fact that they often take a fraction of the time to close in comparison to a traditional loan. Because Florida is such a popular place for tourists and relocating families, it’s essential that you be able to put money down on real estate as soon as it becomes available. With hard money loans, you may be able to avoid missing out on a favorable opportunity due to a pending loan approval.

Easier Applications

Another perk of hard money loans is that the application process is much simpler. This is largely because these lenders do not need as much information or supporting documentation as a traditional lender might. This way, you don’t have to worry about accessing your personal financial data, such as tax returns or proof of income.

Increased Likelihood of Approval

Because hard money lenders focus on the value of the property you are investing in rather than your credit history, you have a greater chance of being approved for this type of loan. While this does mean that the lender acquires the property if you default on your loan, it allows you to secure the financing you need to get started. This is an especially favorable feature for investors with credit problems or those who have been previously denied by traditional lenders.

More Connections

A more subtle advantage of hard money loans is that they allow you to engage in a bit of networking. This goes to say that your lender may be able to finance future projects or even point out good opportunities as they become available. This may prove to be a valuable connection as you develop your real estate business. 

Greater Flexibility When Making Multiple Investments

A final benefit of hard money loans is that they allow you to invest in more than one property at a time. If you take out a traditional loan, there is a good chance that you won’t be able to receive funds for new projects until your first loan is paid off. Hard money lenders are more likely to allow you to take out a second loan as necessary. This is just another way hard money loans help you seize opportunities as soon as they arise.

Contact HML Solutions

Hard money loans may be a bit pricier than traditional loans, but they make up for this added cost in many ways. If you need convenient, flexible and efficient financing, a hard money loan may be the best option for you. At HML Solutions, connecting commercial real estate investors with financing solutions is one of our specialties. Give us a call today to set up a consultation and begin discussing the loan process.

Financing Property Renovations in Florida with Bridge and Hard Money Loans

It doesn’t matter if you’re just beginning your fix and flip business or have years of experience, having access to hard money loans can be a vital resource to ensure your fix and flip is a success. If you’ve always wondered what hard money loans are and how they work for fix and flip investment properties, here you’ll learn more about the basics of these loans and how they work as part of the hard money lending process. You’ll gain a better understand of why you may want to use a hard money loan, how they’re different from other traditional lending, and how to obtain a hard money loan when you’re ready. 

About Hard Money Loans 

A hard money loan is often used for rehabbing properties that are used for rental or commercial use. This is much different than a traditional loan that a homeowner may use for their personal residence. Hard money loans are often provided by private companies rather than traditional banking institutions or mortgage brokers and, unlike other loans, may be given on a short-term basis that can range up to six months. If you work in the fast-paced world of property fixing and flipping, this makes hard money loans ideal for your rehab projects which are often completed over a short term.

If you’re interested in scaling your investment properties incrementally rather than all at once, a hard money loan is a great tool to have as it allows you to rehab an investment property without the headache of putting down a lot of upfront capital. These loans are beneficial because they minimize the amount of money entrepreneurs have to worry about putting into a property on their own.

While there are a lot of factors to consider when flipping a property for resale, such as the price, potential renovation costs, contingencies, and the cost to list and sell, having a hard money loan can defer some of these costs so you can rehab multiple properties at once with little risk. 

About Fix and Flip Properties 

A fix and flip property is a way to build wealth over a short term. As a borower, you seek out discounted properties to renovate, then sell your newly-flipped property at a profit. This process typically takes six months to complete from start to finish. If you want to scale your real estate investment portfolio without putting down a lot of money upfront, a fix and flip hard money loan may be a great option to help you build wealth.

Keep in mind, there are some factors to consider when obtaining a fix and flip loan, such as closing time, property value, and the your overall financial plan. Fix and Flip hard money loans are fast and efficient regardless of the property’s condition, which means you’ll have a great potential to make a profit if you have a well-executed property enhancement, or rehab plan. 

Traditional banks or mortgage brokers may find fix and flip projects to be a risky loan to add to their balance sheet, which may result in unfavorable loan conditions that can affect your overall profit margin. If you’re considering a hard money loan to back your fix and flip project, you should carefully consider your lending source to be sure you’re set up for success and a healthy bottom line after you sell. 

The Basics of Fix and Flip Hard Money Loans

Now that you understand what a hard money loan is and how it can be beneficial, it’s time to understand more about fix and flip loans. Fix and flip loans are often used for short-term property rehabilitation projects that real estate investors purchase specifically to rehab and turn around and sell for a profit. 

When considering a hard money loan for a fix and flip investment, there are some factors to consider, such as the time it will take to close on your loan in relation to your project timeline and what the loan covers in relation to the cost of your renovations. Hard money loans from private lenders typically close faster than traditional banks, sometimes in as little as 3-5 business days. Because time is crucial for fix and flip projects, having a fast turnaround can make a difference in the overall success of the project. 

When you obtain a fix and flip loan from a hard money lender, you’ll typically receive financing amounts that covers 100% of the property purchase if you’re at around 75% of the value minus repairs. The amount of the loan you can use for your rehab project varies depending on the loan type and lender, and the additional loan value can be based upon the ARV, or after repair value. Taking the future value of the property rather than its current value at purchase can help your project be a success. 

Hard money loans are great options for rehabbers because hard money lenders often provide higher amounts than traditional lenders, who usually cap the ARV at or around 70%. We offer financing over the ARV basis, typically at around 75%, to provide fix and flippers with extra capital to cover anything that may come up. 

If you close on a loan at or below 75% of the ARV, it would allow the loan to be more stable and and provide you with more equity to design a profitable deal for your fix and flip property. Before you consider a fix and flip property investment, take your financial expectations into consideration and work with your hard money lender to be sure your project scope is realistic. 

Remember, a hard money loan is a great resource to have for your investment but doesn’t guarantee a large profit margin or, at worst, any profit at all. however, it does guarantee that your project will receive a second look which can be a huge benefit to your overall rehab success. When you work with us on your hard money fix and flip loan, we have a system in place that will fact check your finances to be sure that any loan you obtain is safe even during uncertainties or downturns int he housing market. Our fast, efficient process is designed to help with your loan requests. 

How to Obtain a Hard Money Loan

If you’re thinking of taking out a hard money loan, you should know the process is different than traditional commercial or residential loans. If you’re used to the traditional lending process through a financial institution or mortgage broker, you may think you know what to expect. However, the application process is slightly different and consists of several steps. 

We don’t want the process to be a source of stress, however. We offer a variety of resources to educate you about our loan application process. One part of the application process that sets us apart from our competitors is you can quickly and easily apply right online, which streamlines the entire process from start to finish. 

The hard money loan process consists of several steps, including:

Pre-approval:  Your first stop in obtaining a hard money loan for your fix and flip property is to get pre-approved and go through the borrower underwriting process. If you apply with us, you can find the application right on our website and can fill it out electronically to get started. 

We provide underwriting to help ensure you receive the right loan for your needs. We’ll work with you to learn about additional requirements, such as a credit and background check, and we’ll want to obtain bank statements and tax returls to help facilitate a smooth lending process that will give you the best possible loan for your fix and flip project. 

If you work with a hard money lender and they don’t offer borrower underwriting as part of the hard money loan process, it could be a disadvantage to you and your overall success. Hard money lenders who don’t offer underwriting services often carry riskier loans with a higher foreclosure rate, which can be detrimental to you over the long term. You may also face higher costs because of added legal and administrative fees, which often get passed on to borrowers. 

We consider your level of experience with fix and flip projects when we work with you on your loan. We’ll learn about your past experience with rehab projects, see what contracting experience you have, and if you have any other skilled trades or training certifications you may have that could affect the project’s success rate. Our process is thorough, and we collect all potential client information so we have everything we need to help you successfullyl flip properties. The more information we have up front, the higher your overall success rate with your rehab project. 

Property underwriting

Once you’ve been pre-approved for a hard money loan, we begin the property underwriting process. Whenever you work with a lender on a residential, commercial, or hard money loan, you’ll be required to go through a property appraisal before your loan can be issued. In most typical cases, the appraisal can cost anywhere from $400-$600 to complete, which many rehabbers view as a setback in the rehab process. 

We understand the financial burden that the cost of an appraisal can create, so we offer a unique service to our clients where team members provide these appraisals at no cost to you. Our team of appraisers actively own and manage rental portfolios and flip properties, so they have a deep understanding of the real estate market in relation to your rehab project needs. As property investors, our appraisers work as advocates ensuring your overall success. 

Not only is it important you receive appraisals from experts who understand the market, we also invite you to be present at all appraisals. Together, we work through the proposed fix and flip property and ensure your project plan, overall scope, and financials make sense and will provide you with the highest success rate. 

Tips for Success

Some general tips to ensure your overall success when entering the world of property fix and flipping: 

Startup costs: If you’re wondering how much money you should invest out of pocket to flip houses, of course the lower the purchase and rehab costs are the more stable your loan. You should always have a good plan when you seek funding to fix and flip a property. While it is technically possible to flip properties without investing any of your own money, it can show a lender you’re serious to have some cash available to put into a project.

Upfront capital: If you obtain a hard money loan, you may not need to fund as much capital up front because of the low down payment requirements. However, it is helpful to have emergency money set aside to cover any unexpected expenses during a property rehab. A good rule of thumb is to have enough money set aside to cover interest-only payments over a 6-month period in case your rehab project costs more than you expect. 

How to Use Bridge Loans for Multifamily Properties in Florida

If you are looking to invest in real estate in Florida, multifamily properties are a great place to start. These buildings may be as small as a duplex or as large as an apartment building. Because you have the potential to profit from a number of tenants each month, this sort of investment is quite reliable. Further, it is often easier to finance multifamily dwellings in comparison to other types of real estate. When you spot the property you wish to invest in, a bridge and hard money loan may be the best way to close the deal. Consider how one of HML Solutions’s loans could benefit you in your next business venture.

Bridge Loan Basics

In contrast to many traditional loans, bridge loans can be acquired quickly and often don’t require extensive credit checks because they focus on the value of the property you are investing in. This makes them an ideal financing solution for real estate investors who need to capitalize on time-sensitive opportunities. 

Bridge loans are often a pricier option relative to traditional loans and therefore are typically used as a temporary source of financing. Once an investor is able, he or she may choose to refinance by taking out a long-term loan and paying off the bridge loan.

There are numerous reasons businesspeople cannot initially get a traditional loan. For instance, a lender may need to see that the property is suitable as a living environment or that the owner is making a regular income from the purchased real estate. Bridge loans provide investors with working capital at the start of their project so that they can meet other lenders’ requirements and then refinance.

Bridge Loan Logistics

When you apply for a bridge loan, you can expect to receive your funds in as little as two weeks. A traditional loan could take up to four times as long. Bridge loans often feature interest rates ranging from 6% to 13%. While this may be more expensive than other types of loans, their accessibility makes up for the added cost.

Another important factor to note about bridge loans is that they can be either recourse or non-recourse. Be sure to clarify which type of loan you are applying for as recourse loans entitle the lender to take ownership of assets other than your new multifamily property should you fail to make payments.

Once you are approved for a long-term loan, you may use that money to pay off your original bridge loan. Depending on your lender, there may be fees required for prepayment of the bridge loan. 

Hard Money Loans

A subtype of bridge loans to be aware of is known as a “hard money” loan. This type of loan is often even more costly than a bridge loan, but it may be a good option if the property you are investing in does not deemed sufficiently profitable or if you have poor credit.

Contact Us Today

If you have your eye on a particular multifamily dwelling, give HML Solutions a call today. We would be happy to set up a free consultation to find out if a bridge or hard money loan is right for you.