A Los Angeles real estate investor took out a zero down payment hard money loan by using a free and clear rental property as additional collateral to acquire a 4-unit fixer upper.
The investor hoped to acquire a distressed 4-plex fixer upper at a steep discount. Originally they wanted to know if First Capital Trust Deeds could provide 90-95% loan-to-value (LTV) financing on the new acquisition, with the hope that FCTD and the hard money lender could take into consideration after repair value (ARV). Due to the condition of the property, which was in very bad shape, the largest hard money loan FCTD could find was a 70% LTV commitment on the purchase from an apprehensive trust deed investor. We say apprehensive, because the property was in very rough shape and was going to need extensive work and the lender didn’t want to over encumber the property.
Since the buyer had an extensive track record of successfully buying and selling properties along with owning several rental properties, FCTD used one of the free and clear rentals as additional collateral to make this a zero down payment hard money loan.
The purchase price of the 4-plex was $330,000 and the new loan, using the unencumbered rental property, was for $360,000. This gave the buyer money for closing costs and approximately $20,000 to start making renovations to the two vacant units in the 4-plex.
The hard money investment fund lending the money liked this idea of using the free and clear property as additional collateral. Since the borrower intended to fix and flip the 4-unit, the lender structured a 12-month bridge loan without a prepayment penalty. In the end, the borrower sold the 4-plex for a six figure gain seven months later.
Zero Down Payment Hard Money Loan Terms:
- $360,000 Loan Amount (65% LTV Across Both Properties)
- 11.00% Interest-Only
- 12-Month Term
- No Prepayment Penalty