First Capital Trust Deeds provided hard money foreclosure auction cash re-capture financing to a Northern California real estate investor who had been paying cash at auction and refinancing with a local hard money lender to get a portion of the cash back out to renovate the property.
The system was working okay, as the investor was recycling cash 3-4 times a year under this arrangement. However, the investor realized they were losing out on several other easy cosmetic fixers that were going through auction that could be quickly turned around within 3-4 months for a $30,000 to $50,000 profit.
The problem with the previous hard money lender’s terms was the high upfront origination fees cutting into the profit margin and the limited leverage of 60% loan-to-value (LTV). The loan had a 4 point origination fee and 12.00% interest-only.
By chance, this investor was referred to FCTD by a friend in the business who had received our email marketing flyer five months earlier. After a few conversations about different transactions and loan scenarios, we realized that we could provide financing with lower upfront fees (1-2 points) and higher leverage (75-85% LTV) on foreclosure auction “cash re-capture” loans, which would allow the investor to increase their auction purchases from 3-4 per year to 8-10 per year.
We set the client up on a 1 point origination fee at 12.00% interest-only up to 85% of auction purchase price, which would likely be 75% of as-is value.
We’ve found that this pricing structure is great for busy house flippers who are out buying and selling at least one property per month because it gives them higher leverage and carries a much lower upfront origination fee, which helps their profit margins, which can be pretty thin on homes priced below $200,000.
Hard Money Foreclosure Auction Cash Re-Capture Financing Terms:
- $150,000 Loan Amount – 75% LTV
- 12.00% Interest-Only
- 1-Point Origination Fee
- 12-Month Term
- No Prepayment Penalty