Did you know you can use hard money to buy distressed properties on auction.com?
The website is the nation’s leading online real estate marketplace for the sale of bank-owned and foreclosure properties.
Many of these properties are sold below market value making auction.com a fertile hunting ground for investors, flippers and developers.
Transactions are fast, efficient and transparent.
But many opportunities are missed because potential buyers don’t realise they can use hard money to fund the deal.
How property flippers use auction.com
Opening an account with auction.com is free.
But with tens of thousands of properties listed at any given time, finding the right one can be challenging.
The trick is to begin saving different searches using zip codes, counties or states based on the area you want to buy.
You’ll then receive daily emails notifying you of new listings in your desired area.
Buyers are given personalised property matches and can also subscribe to foreclosure data lists in various formats to help them compare properties of interest.
A $1000 refundable bid deposit gives you access to all online auctions and identifies you to sellers as a serious bidder. This is merely a hold on your credit card, not a charge.
Be sure to review the property’s title, photos and garner any other necessary information before the auction begins.
You will also need to prepare your proof of funds in the event you are the winning bidder.
The challenges of conventional funding
Property developers often think of conventional bank loans first when considering flipping or redeveloping properties.
The problem is they are often not a good fit for traditional lenders, who are not geared to support the unique circumstances and needs of property entreprenuers.
Banks use traditional metrics when assessing a borrower’s worthiness.
Firstly, they take into account a borrower’s credit score and credit history.
They also assess your income and assets with the borrower required to prove they can service the loan.
Future rental income is not considered, nor is the After Repair Value (AVR) of the property.
This is a critical part of the equation for flippers who bank on being able to repay a loan from the profits of their renovations.
Many banks will also require a downpayment as high as 30 per cent for investment loans.
They demand lower debt-to-income ratios and extensive documentation making the process extremely difficult for many flippers to qualify.
It can also be a time consuming process, putting borrowers in danger of missing out on their desired property.
In addition, traditional lenders may also refuse to lend money for distressed properties.
Why hard money is the solution
A hard money loan is any loan issued by non-conventional lenders instead of banks.
It uses the value of the property as collateral rather than a borrower’s creditworthiness.
It is typically a short-term loan (between 6-18 months, up to three years) ideally suited for flipping a property rather than holding it.
It’s a powerful tool for property entrepreneurs for many reasons:
- It can be acquired and approved quickly, usually within days rather than weeks.
- The property’s AVR is used to assess a borrower’s capacity to repay the loan.
- There is much less red tape making it easier to qualify for a hard money loan.
- The primary focus is on the profitability of a project rather than a borrower’s credit history.
- You can pay off a hard money loan with a conventional loan during or at the completion of the project.
- Hard money loans may require only a small downpayment allowing investors to take on larger projects with less initial cash.
It is important to remember hard money loans do come with higher interest rates, but of course the short-term structure and many benefits outweigh this.
Just make sure you’re across all the detail and get advice about whether this type of finance is best for your needs.
Using hard money to buy a property on auction.com
Once you have decided to use hard money to fund your project, it’s time to land your property on auction.com!
Here’s what you’ll need to consider:
Proof of funds – Prequalify with a hard money lender, ensuring you are familiar with the terms, conditions, fees, interest rate, timing, funding processes etc.
Set a bidding strategy – Carefully calculate your property’s ARV factoring in renovation costs when determining how much to bid. Hard money lenders typically offer loans around 65-75 per cent of the ARV.
Securing the property – If you are the winning bidder, you’ll need to submit all of your post-auction documentation including the purchase agreement within two hours of the auction closing. You’ll also need to submit your Earnest Money Deposit (EMD) along with proof of funds to the seller. Full payment is normally required within a specified time, often 30 days.
Bank-owned properties vs foreclosure sales
There are two main types of properties on auction.com and buyers need to plan slightly differently depending on which one they purchase.
Bank-owned properties – Most hard money lenders require a property appraisal or inspection to confirm the LVR. This may not be possible if the homeowner or tenant is still occupying the property and is not legal during the escrow period. However, these type of transactions usually take beyond 30 days to close, giving buyers plenty of time to ensure all documentation including the purchase agreement and renovation plans are tabled.
Foreclosure sales (Trustee/Sheriff sales) – These purchases require cash payment, often on the day of sale. Hence you will need to have agreed a loan amount with your hard money lender before the auction.
Get advice and funding today
Buying property to flip from auction sites is often a very time-sensitive endeavour.
Investors often need cash quickly and with a minimum of fuss.
That’s why hard money is often the fastest and easiest solution.
If you want to prepare to buy property on auction.com or through any other means, Equidy can help.
At Equidy, our founders have an intimate and personal history in property, covering all aspects of real estate and property development in California for more than four decades.
We believe anything is possible and we try to prove it every single day.
Our goal is to reward entrepreneurship to help you crystallize your wealth creation dreams.
But we are much more than just a finance facilitator.
We will work creatively with you every step of the way, providing our vast knowledge and support network to help your project take shape.
We enjoy long and established relationships with serious investors, sellers and real estate professionals while leveraging our reputation and trust and using clear communication to minimise the risk to all parties.
Contact Equidy today to book your free strategy call.
