I'm considering the purchase of a foreclosed commercial property. The property continues to cash-flow under the management of a court-appointed operator. The bank's asking price is 65% of appraised value as they want it off their books. They are also offering financing with reasonable terms. There's definitely value to add (and to realize) with this property.
My question: can private money or hard money be used to supplement the capital I have to deploy for the down payment? I understand the terms are less attractive terms with these lenders, however: the current cash flow will cover all debt service. I have found a few direct commercial lenders which will do second position loans. My concerns are the logistics...
Do direct lenders lends on properties under contract or does the property need to be owned?
How is POF handled for the bank financing when the capital is being supplemented by hard money?
Is this a typical use of private/hard money?
Most hard money lenders will only lend for relatively short time periods, often a year or less. There may be some in your area who will extend longer but you must have a credible plan for cashing the short term lender out.
yeah...I'm aware of the typical terms with hard money lenders. As this is a cash flowing property which will be purchased way below market price, the entire debt service (the conventional first and the hard money second) will be covered with the existing income from the property. If that fails, I will still have w2 income that could easily cover the hard money loan. My questions are more about the usage of private/ hard monies to supplement my down payment capital and the logistics of getting it in place for the POF needed for the bank financing.
Hard and private lenders should be willing to give you an approval letter.
Hard money lenders and savvy private lenders will want to be in first position. Your bank loan will also want to be in first position.
Some first mortgage lenders won't allow seconds, some will. You won't get to 100% LTV, though, regardless of the values and the price you're purchasing it for. The primary lender is going to want to see some of your own cash into the deal.
If you can orchestrate a deal like you're contemplating, all the money would go to the title company and be disbursed at closing.
Jon Holdman, Flying Phoenix LLC
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