Private Lending for Distressed Property Acquisition
Purchasing a less-than-perfect property with the intention of doing it up for financial gain comes in many guises. This could be the classic fix-and-flip or the potentially lucrative BRRRR (buy, refurbish, rent, refinance, repeat) model.
Distressed property financing can be approached in many ways. Unless you’re lucky enough to have enough liquid assets to be able to purchase your chosen real estate outright, then you may well be looking at private lending to make your dream come true.
Distressed Property Financing 101
- What are the private lending options for distressed property financing?
- What are foreclosure property loans?
- What is REO financing?
What are the private lending options for distressed property financing?
Borrowing from a private lender—AKA, a hard money loan—is fast becoming one of the preferred methods of financing a personal property investment. Such companies and/or private investors have very different lending criteria from that of banks and credit unions.
Instead of considering your personal financial circumstances, lending decisions are made solely on the potential future worth of the intended real estate purchase. This will include all the costs involved in the refurbishment of the property, such as:
- Gaining any necessary permits for work.
- Structural repairs and construction costs.
- Replacement/installation of facilities, such as bathrooms and kitchens.
- All decorative works.
- Landscaping.
- Electrical and plumbing requirements.
The type of loan will also be determined by whether you intend to sell the property as soon as it is complete, or if you want to add it to a rental portfolio.
Distressed property purchases can offer considerable potential for maximizing your investment—but once a property is found you’ll likely need to move fast. One of the greatest advantages of borrowing from a private lender is how quickly the funds can be made available, sometimes within a week or less.
The key to a successful distressed property purchase (apart from securing the funds) is to understand industry jargon, as well as knowing how and where to look for such real estate.
What are foreclosure property loans?
A foreclosure property loan is just a term used for borrowing money to purchase real estate that has been, or is at risk of being, reclaimed by the bank or lender due to payment default. In such cases, the lender might agree that the owner can sell the home—and these often go for significantly less than market value.
Certain real estate agents specialize in advertising such listings. It’s also a common tactic to drive around a neighborhood to find distressed homes. Other options for finding suitable possibilities include:
- Looking at local multiple listing services (MLS).
- Visiting one or some of the many distressed property websites.
- Searching local county records to find those who are behind on mortgage payments.
- Contacting local probate courts.
- Going to a foreclosure auction.
What is REO financing?
Real estate-owned (REO) properties are those that have been repossessed by the bank due to payment defaults. They aren’t sold at a foreclosure auction, instead being marketed via a real estate agent and/or online. They are often sold at below market value because the bank simply wants to quickly recoup the funds.
REO financing is a loan given specifically to purchase such a property. Such real estate is often extremely neglected and/or damaged, meaning regular lenders often won’t consider loans for such purchases. However, strategic borrowing through a hard money lender is a common and viable alternative.
Want to Know More About Private Lending for Distressed Properties? You Need the BRRRR Master’s Program.
Whether it’s your first foray into the world of fix & flipping and BRRRR, or you’re happily growing your real estate portfolio, we’re fast becoming the go-to lender for those in the know—and we’d love to help you on your journey. Our “investor ready” program will teach you everything you need to know while embarking on what can be an incredibly lucrative process.
Discover more at https://www.brrrrmasters.com/brrrr-masters-program or call our team today for a no-obligation chat.
Buy, Rehab, Rent, Refinance, & Repeat. A nationwide direct lender to real estate investors. If you have a project that needs to be funded, you’ve come to the right place.