One of the challenges for frequent foreclosure auction buyers who utilize hard money financing to leverage their return on investment (ROI) is the time that it takes from buying the property at auction to receiving cash-out funds on the refinance loan. Under most circumstances, this takes about 21-25 calendar days. However, First Capital Trust Deeds has a program that shortens the process from 25 days down to just 7 days.

What takes so long, you might ask?

Upon buying the property, a real estate investor will receive a Trustee’s Sale Receipt on the day of the auction sale. After 15-18 days, a Trustee’s Deed arrives in the mail and needs to be recorded by the buyer. And after it’s recorded, a title company can issue a preliminary title commitment for the buyer and then a hard money lender can issue loan docs to be signed at about the 21-day mark. Give a few days for loan funding, recording, and disbursing and you have 25 calendar days from winning the auction bid to closing a hard money “cash recapture” loan.

What’s wrong with having to wait 25 days to get the cash back?

For many people, waiting 3 1/2 weeks doesn’t matter. They have enough cash on-hand to start the eviction process or begin renovations if the house happens to be vacant. Or, their business model is set up to flip 3-4 houses per year at smaller margins ($20,000 to $30,000/each) and they’re happy with the time frame.

However, for other real estate investors, who have a higher volume and sometimes lower margin business model, they want to get their cash out ASAP to acquire additional properties coming through upcoming auctions in the weeks ahead.

Our company has a unique working relationship with a title company that speeds up the “cash recapture” process for our higher volume house flipper clients. The title company will issue a preliminary title report off the receipt from the Trustee’s Sale which allows the lender to draft up loan docs within 1-2 days of the auction purchase. Give another 1-2 days for funding, recording, and disbursement and you have a successful 6-7 day “cash recapture” loan. When the Trustee’s Deed is mailed to the owner, they’re required to send the copy to the title company to record the deed and make the transaction complete.

This program by the title company allows the higher volume foreclosure auction buyers an opportunity to re-capture 70-75% of their cash loan within 6-7 calendar days of acquiring a property. In the event that another property is going through auction that they’d also like to buy on the courthouse steps in the upcoming week, they’ll have enough cash on-hand to make that purchase as well, starting the process of recapturing or recycling funds all over again with another hard money loan.

What’s the pricing on the cash re-capture loan for repeat house flippers?

We’ll use a $200,000 auction purchase price for the sample numbers:

  • $150,000  (70-75% LTV)
  • 12.00% Interest-Only
  • $1,500/mo Payment
  • 12 Month Term
  • No Prepayment Penalty
  • Closing Costs:  1 Point + $1,295 (Doc/Valuation/Processing) + Title/Escrow

We, and our repeat house flipper clients who are successfully recycling and recapturing their cash believe this system makes a lot of sense because the upfront origination costs are limited to approximately 1 point + $1,295. If the costs were 4-5 points, it wouldn’t make as much sense because the lender and/or broker would be cutting too far into the profit margin of the house flipper. And for buyers in the $200,000 price range, the margins are usually too thin to justify paying 4-5 points in origination fees.

If this is something that might benefit your business, please contact us to discuss getting started on a frequent flipper financing program.