A Bay Area investor used 75% Loan-to-Value (LTV) hard money cash-out refinance loan to access equity in a free and clear recent foreclosure auction acquisition.
When it comes to a hard money cash-out refinance, 75% Loan-to-Value (LTV), is usually the maximum that we’re going to do be able to do for our fix and flip financing clients. And not just fix and flip financing, but everything from hard money bridge loans, owner-occupied, and non-owner investment property loans. Ideally, 60-65% LTV is where hard money lenders like to be and at this point in the housing cycle, they’re more than likely to be in the 60-65% range on cash-out refinancing, rather than 70-75% LTV.
In fact one lender, a back-leveraged fund from Southern California, said that 90% of the defaults in their $100+ million portfolio comes from cash-out refinances. The borrowers got the money they needed and eventually stopped making payments or ran into another cash-flow crunch that limited their ability to service the debt.
That being said, if a person is looking for 75% LTV hard money cash-out financing on a buy/hold property, don’t expect it to be easy. There are ways of making it happen but it’s going to require a lot of documentation, including rent rolls, property management agreements, bank statements, and full appraisals.
But if you’re a house flipper who goes to foreclosure auction to acquire homes in cash to flip within 3-4 months, you can get a 75% LTV cash-out loan within 5-6 days. Normally auction buyers will be able to get 75% of their money back out in order to go back to auction the following week to pick up another property to flip.
This allows successful real estate investors who have a well developed system of turning over properties the ability to double and triple the amount of homes they buy and sell each year.
But be careful, it’s not for the faint of heart. House flippers need to be on top of the construction process along with their finances because this can be a real juggling act between contractors and bank accounts. Our recommendation is to start small and then grow into a higher volume business model.
That’s what our Northern California house flipping client has successfully managed to do. Before we started working with them, they were buying 3-4 houses per year, paying 4+ Points at 12.00% for hard money loans that also carried a 3-month prepayment penalty. Now with FCTD arranging their hard money fix and flip financing, they’re paying 1 point + $1000 at 12.00% without a prepayment penalty. And when they make auction purchases, like this property pictured above, FCTD can get 75% of their cash-out within 5-6 days, allowing them to flip 10-12 properties per year rather than just 3-4 homes.
Hard Money Cash-Out Refinance Terms:
- $150,000 Loan Amount (75% of purchase price | 57% of eventual sale price)
- 12-Month Term
- No Prepayment Penalty