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 the Dallas area, 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 lending.”
“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 purchases.
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 in Dallas area 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 local Dallas foreclosures as part of your investment strategy, the first step is to find the right property. Contact me anytime to discuss your objectives. Click here to Get Pre-Approved Now!
Access Dallas Realty
Alex Bortniker Broker/Owner
We specialize in Dallas, Plano, Frisco, Carrollton, Mckinney, Allen, Lewisville, Little Elm, Richardson, Addison, Garland, Flower Mound, Irving, Highland Park, University Park, Park Cities, Uptown, Downtown, Lakewood, Oaklawn and surrounding areas.