For real estate investors, distressed properties can be highly lucrative. However, you’ll likely face competition if you’re trying to secure an apparent bargain with a substantial estimated after repair value (ARV). To be a successful investor, you need to learn how to close deals on distressed properties in a matter of days, which can prove challenging if you don’t have hundreds of thousands of dollars in cash.
Fortunately, you can purchase distressed properties quickly, even if you’re just starting as an investor, as Omid Akale with Twin Cities Portfolio Group explains.
How to Borrow Money Quickly
It’s true that cash deals are often more attractive to sellers of distressed properties, especially if obtaining money rapidly is a priority due to debt problems. If a bank approves a mortgage or loan to pay for the distressed property, you might have to wait 30 to 45 days for the finances to arrive. That’s plenty of time for another buyer to snap up the deal, explains Omid Akale.
You can access funding faster by borrowing from private lenders. Because private lenders generally charge higher interest rates than banks, you should still get a bank loan to pay for the property. First, get the cash you need to close the deal quickly from a private lender, then refinance your bank loan to pay off the private lender and get a lower interest rate.
Be aware that in most cases, you can’t obtain a conventional F.H.A., R.D., or V.A. loan for a distressed property.
How to Bring the Price Down
Omid Akale says Being able to pay for a distressed property within a few days gives you an advantage at the negotiating table. Many sellers would rather take cash quickly than wait for months for any money to arrive (particularly since the longer a transaction takes, the more things can potentially go wrong). Generally, you should try to avoid paying more than 70% of a distressed property’s ARV.
What You’ll Need
It’s a good idea to obtain a Master Loan Commitment from a credit union or bank before approaching lenders, Omid Akale explains. This document guarantees the bank will provide you with the agreed loan, which proves to private lenders that you can pay the money back.
You will need some cash on hand to invest in distressed property. Usually, down payments cost between 20 and 30 percent of the property’s sale price.
Where to Find Lenders
Networking is key to finding reliable and reputable lenders, says Omid Akale. If you’re starting, you can use social media and even sites like Craigslist to find private lenders. You shouldn’t rely on Craigslist, but if you’re in an unfamiliar area and want to establish some contacts, you will find plenty of investors on there.
You can also go to the local County Courthouse and request a list of private lenders. All those lenders are guaranteed to be licensed. You should look for local meetups, clubs, and groups to build your network, too. You’ll find lenders in addition to investors and all sorts of valuable types at get-togethers centered on real estate.