Lending Tools Bridge Kenai Foreclosure Opportunities
Sophisticated Kenai Foreclosure
The mortgage industry has changed substantially since
2007, when the opportunities for “house flipping” as an investment strategy
were widespread. Today, for investors seeking to take advantage of short sales
and foreclosures in Kenai, those changes are especially meaningful. One of the
aftereffects of the subprime mortgage meltdown is the way banks now treat
mortgage lending. Every banking organization has developed new approaches for
handling foreclosures and short sales, but in the non-distressed portions of
their loan portfolios, other changes have become evident, too.
Banks have grown increasingly reticent to lend to
investors with multiple properties on their books — even when the potential
buyer has enough cash to pay a significant down payment on the foreclosure, and
can otherwise afford to service the loan.
Thus the resurgence of “hard money lending”: aka “bridge loans” or “gap
Wikipedia supplies a useful definition:
“Hard money lenders” provide short-term loans (also
called a bridge loan) to provide funding based on the value of real estate that
has been collateralized for the loan.
“Hard money loan” is a harsh-sounding name for a fairly
sophisticated lending tool. Less intimidating synonyms are “short-term loans”
and “bridge loans.” By any name, they are short-term loans whose funding is
based on the value of real estate collateral. The lenders can be banks, but
more often are private investment groups.
Hard money lenders, recognizing the long-term value of tangible
property, are willing to risk their liquid capital on real estate (whether or
not purchased through foreclosures) where banks will not. These types of loans come at a steep price to
the borrower — and are almost never available for primary residence
Although interest rates in today’s hard
money market are not much cheaper than they were back in the 1980s,
foreclosures in particular can provide situations where they can open
opportunities to sophisticated investors. Quick cash to the borrower with less
processing paperwork can solve timing dilemmas that might otherwise stymie a
transaction. Investors in the process of
flipping a property can profit from a hard money bridge loan because they only
need the proceeds for a short interval. Especially when they have an
established relationship with real estate professionals like me who have
clients hunting on the Kenai Peninsula for “move-in” ready homes, the extra
interest can still pencil out to make good business sense.
Bridge lending is just one way to
finance a potential investment. It’s not for everyone: potential borrowers have
to carefully weigh the pros and cons and should always consult their tax or
accounting professional. However, if
you’re looking to take advantage of any Kenai foreclosures as part of your
investment strategy, the first step is to find the right property. Contact me anytime to discuss your objectives
and this summer’s Kenai real estate picture.