How Much Money Do We Really Need To Buy Foreclosures Before Or At Auction?
We are would be first time investors in real estate and have been studying up the various stages of foreclosure and the ways to buy. We thought we had enough to buy one property for us, and another as an investment, but having learned more about this market generally, and wanting to keep away from the lower priced, lots of repairs options, we are starting to get concerned about our ability to fund this grand plan. We will be able to get a line of credit on the home we would buy as a residence though. What other options have we got when we haven’t time to raise a mortgage to close a deal?
You raise money through a Home Equity Loan and then refinance later, that gives you all the cash you need to close at auction. Or you could use your line of credit or a Hard Money loan if you are pre qualified for a conventional mortgage and just need bridging finance. Some investors at auctions join partnerships with other passive investors. You could form your own pool with family and friends.
With pre foreclosure there are some other options you can work out with the seller, such as assuming their loan(s) with lender’s agreement and curing their default, or purchasing “subject to” when the loan stays in the seller’s name, even substituting a rent free stay in the house for the seller instead of a down payment. Wraparound loans aren’t legal in some states and are difficult to administer.
I think since you have enough equity to get a line of credit then as long as you ensure you don’t bid for more than the amount you have available in cash using this, minus repairs and costs you have a sound base. Some first time investors I know started off building their working capital by doing the donkey work, securing deals in preforeclosure and taking a finders fee from a pre-identified source of investors.
There are all kinds of funding options. You should probably sit down with a loan officer and review.
Here’s is what I’d suggest to do.
Buy up shortsales. Typically, they are hard to find, but you can get homes 20-30% discounted.
Secondly, on a 20% discounted home, you can get 80% LTV financing, which is easy to get and 100% financed.
Since it is hard to find shortsales, I do have a lot of contacts and can help you find shortsales across the country. If you’re serious, or have questions, just email me.
markaleks@gmail.com
If you buy it at auction you will most likely do it on the courthouse steps and you need cold hard cash.
As far as investment property, in the current market it would be safe to put away roughly 10% down payment plus closing costs, assuming your credit is sound. Deal with a reputable broker and they will get you the best rates/term/loan product that fits your budget.