Cashing in pretty quickly on a property under foreclosure and distress or some sort of urgent possibilities which come in handy once in a blue moon in commercial real estate is a smart move to put some good cash in your pocket. Be it as it may that you become deep-pocketed investing in distress investment, you might want to know that it comes with some shortcomings too, especially when you are venturing into a deal that you lack the technical know-how thereof.
Food for thought for a hard money borrower
In real estate investment, it is good to act quickly so as to not kill the goose that lays the golden eggs. And for the most part, some possibilities really come in handy. For that, you would want to get funding as quickly as possible to put an opportunity to use. Borrow and invest wisely so that you don’t risk losing the capital that you don’t have in the first place. Understanding the different categories of distress property before cash in on one is imperative.
Short Sales
It is used to describe a property that is to be sold less than the amount that the mortgagor owes a mortgage holder. One good thing about investing in a short sale is that you are allowed to check the proper and evaluate its worth before purchasing it. And it is also cleared of all mortgage titles. Pending uncle sam is not your business, it is the seller’s. But one big challenge with borrowing to invest in short sales that put most borrowers on the hair end is the need for the approval of the funder to go into the deal. And in many instances, lenders rarely consent to it. For that, it processing a lending deal can be a little lengthy, taking a couple of months of say three to 12 months. Remember that the vulture is a patient bird.
Foreclosures auction
A foreclosure is a property confiscated from a mortgagor by a lien holder when the former fails to meet up with the loan financing. It is usually auctioned by a board of trustee to the lender. The lender would either foreclose the property for the exact loan amount or less. Potential buyers are allowed to bid for a foreclosure- the highest bidder gets the deal. Winning an auction paves the way for you to get a property less the market price value. On the other hand, you stand no chance of inspecting a foreclosure before payment and you will be paying for any outstanding uncle sams. There may also be other pending bills or legal issues with it. These aspect part distress investment is reserved for experts. Using a mentor when venturing into foreclosure is a smart move.
Real Estate Owned Property
It is the reverse of auction. At auctions, the lender is also a bidder and if they win, the property becomes theirs. Thereafter, the lender would deal directly with potential buyers. In contrast to to foreclosure auction, you are allowed to check a property before purchasing it. In the event of any pending uncle sam’s bills, you and the lender share the burden. Major renovation works, payment for the upfront worth of a property and cost increase are some of the challenges that you may encounter when investing in REO. Smart investors make friends with commercial hard money lenders who paves the way for the former to get access to ROEs at reasonable costs.
Be sure to apply some degree of wisdom when looking for a commercial hard money lender. Quite a handful operate like shylock. If you get into their trap, your investment could go down the drain in form spending way too much to service a loan.
