Hard money for auctions?

Question

Christopher Phillips · Answer

@Kevin Schultz

Welcome...

Auctions are generally cash. Especially the court house step or sheriff auctions. That means cash on the spot.

Hard money requires inspections and an underwriting period (even if only 5-7 days). Auctions don't allow that.

Wayne Brooks · Answer

Not going to happen if you need the funds within a week or so. You need a cash partner, not a lender.

Kevin Schultz · Answer

@Tarik Turner

Can you tell me more about this? Can it be used in TX?

Account Closed · Answer

Hi @Kevin Schultz

I am not sure how auctions work in Texas. But in NJ you are required to put down 20% deposit.  Then you have 30 days to come up with the 80%.  As a hard money lender, we usually close in 5-10 days so it is easy for us to have the money to close before the 30 days are up.

Tarik Turner · Answer

Sounds Good

Kevin Schaefer · Answer

@Tarik Turner that sounds perfect for my strategy we'll have to talk about that. Next meeting is next Tuesday !

Clifford Paul · Answer

@Kevin Schultz

Yes you will definitely need cash at the time of the auction. You can pay with cash or cashier's check only. If you do not pay at closing of auction you will be liable for 20% of property value plus fee's.

You will receive a sheriff's deed without warranty, you may not be able to get title insurance on the property. You can not take possession of property for 20 days after auction date.

Property owner gets 180 day redemption period unless it's a homestead exemption /ag exemption property then it's 2 years.

If property is redeemed they have to pay you auction price plus 25%. However if you rehab the property you just rehabbed the property for free. Any money spent on the property other than general maintenance (mowing, tree trimming etc). Can not be recovered.

You will be liable for any liens on the property.

Now a word of caution. If you are new to real estate investing buying at auctions is not the best use of your time or money.

These properties are all D class properties and if a C or B property actually makes it to auction you won't have a chance unless you show up with 200k in your pocket.

Kevin Schaefer · Answer

The issue for a Sheriff sale is that you don't get access to the inside of the property to do the appraisal. I've spoken to a few lenders here in NJ about this as I regularly attend the Bergen and Passaic auctions and would like to use hard money myself to compete the deal. One said they would consider lending the 80% balance based on a drive-by appraisal (more like a BPO). In that scenario they said you would need to put down the initial 20% using your own cash (your stake in the game). This is all theoretical as the lender that mentioned this didn't commit to it on paper and I have yet to attempt it.

One thing to keep in mind though is that if you do win the bidding and put down your own 20% and then try to finance the balance afterward and it doesn't go through, you'll have to hit up a private lender (if you can find one), or file a Motion to Dismiss with the court to try and get out of the deal (and get back your 20%). I recommend using an attorney to file the motion for you.

Vaughn Smith · Answer

@Kevin Schultz In my area you need cash to purchase from the auction, typically a percentage is paid upfront with the balance being due shortly after.  You won't be able to make a purchase with a hard money loan, you may want to seek private money. There are many people that speculate or are interested in Real Estate but don't have the time or expertise to find and manage their own deals, a partnership with one of these individuals may get you to where you need to be.

Hard money for auctions?

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