A San Diego real estate investor used an 85% LTV hard money fix and flip financing loan from First Capital Trust Deeds to acquire a luxury high rise condo.
Because this was a short sale purchase, the buyer (our hard money borrower client), had to wait out the second lien holder. And the second lien holder was hemming and hawing with the seller, HOA, first lien holder, and anybody else with a claim on title over the amount the second would be willing to take for a payoff. Even more than all the hemming and hawing, was the owner of that existing defaulted second mortgage pushing out into a distant fiscal quarter the full realization of the loss on the accounting books.
Anyone who has been involved in several short sale or distressed sale transactions since 2009 has endured the sometimes lengthy and often illogical waiting game that the second lien holder makes all parties endure. It’s just part of a strategy that slowly rides the “too big to fail” banks of their bad mortgages from the first housing bubble by spreading out of the losses over a decade or more.
Sorry, we digress.
For buyers like our client on this luxury condo in San Diego, who locked in a discounted purchase price and waited 14 months for the second mortgage to finally agree to accepting $5,000 from the $200,000 unpaid balance (UPB), they benefited by the surge in home prices throughout California. So when it came time to close escrow, they had gained an additional 15-20% of built-in equity thanks to the hemming and hawing of the second lien holder pushing out their loss way out into the future. It turned out to be a lucky break for our client, who gets a few of these fortunate breaks each year.
When things like this happen, and the property gains 15-20% in value while under contract, our trust deed investors will often increase the loan-to-value (LTV) up to 85% (sometimes 90%) on the purchase money loan. Even though it’s 85% of purchase price, the trust deed investor sees it more like 65-70% of as-is value, which is a relatively safe loan to make to an experienced house flipper on a beautiful property.
85% LTV Hard Money Fix and Flip Financing Terms:
- $630,000 Loan Amount
- 11.00% Interest-Only
- $5,775/Month Payment
- 12-Month Term
- No Prepayment Penalty