Is it possible to finance auction properties?

Question

It seems like a lot of the good deals on multifamily properties sell at auction. But, most of the properties on auction.com are being sold cash only. Any ideas on how to get around this and buy one with financing? Could you use hard money somehow? I know it's a long shot but I just want to make sure I'm not missing something here before I write auctions off as an option.

Charles Kao · Answer

@Emily McCabe Try a lender that will preapprove you for a certain amount and then allow you take from it with preapproved draws. I have a lender that does not lend in Maryland that I recently was referred to that has approved me for a certain dollar amount because they underwrote my business financials well in advance which took 2 weeks, then I complete and application for a draw and as long as it meets their requirements I am approved. If you do go the HML I would definitely pay to get a broker to facilitate the process which will like cost an additional 1-3 points but will make sure it closes. I will be honest with you that most investors including myself are not exactly open to sharing our private money lenders because selfishly, once one person that is well connected finds out the private money dries up super fast. I'd also be networking at your local REIA as much as possible. Lastly, I know this is probably the last advice you'd want, but have you considered downgrading your lifestyle. I wrote a blogpost and discussed it on my podcast Show 178 for Bigger Pockets about this, but back in 2008, when I got married my wife and I let her home go to shortsale and we downgraded from a beautiful 4 bed/2 bath and moved into a condo we bought for 17,000. We had the money to paydown but with how much it was underwater, I would have had to sell another one of my investments just to break even so we let it go. In honesty, the simpler lifestyle was what we needed. We had an electricity and gas bill totaling 90 bucks a month with no mortgage payment and an HOA of 139 a month and we saved an additional 60,000 over the next year and bought our next house cash. We spent that time traveling, and doing many of the other thing we enjoyed and never missed having all the extra space. It may be out of line to suggest that as I don't know you and obviously your market is different but it sounds like being freed of such a large financial commitment could free you do invest more.

Charles Kao · Answer

Emily McCabe That is best way to go. My offer is always cash but sometimes although not often I write convenience checks off credit cards, take out unsecured loans with no closing costs, borrow from friends or other investors. All that matters is you can get those funds in two weeks. The interest rate does not matter to me because I am paying interest on it for such a short time frame with not closing costs, and the interest sometimes is lower than what I would pay in closing costs anyways. As soon as it closes refi it out but make sure you can refi it out because if the house is a mess you may have difficulty doing that. I have bought houses with bad foundations that no bank would lend on then after we close fix the foundation and throw it on credit card. Then close on refi before payment is due on the credit card. Not ideal but starting out had to do what I could.

Jason Hirko · Answer

@Emily McCabe Well, short of having a line of credit or very trusted private lender, the only way I know of it being done is how we do it - someone buys a property with their own (or friends/family) cash at auction, then we do a cash-out refi as soon as they get the deed from the trustee/bank/lien holder.

Anthony Dadlani · Answer

Emily, There is a way. Some lenders have special auction finance programs. Best of luck in all your endeavors

Emily McCabe · Answer

@Charles Kao thanks, the credit card idea is interesting. I'm really afraid of getting stuck in a situation like that and not being able to refi for some reason. My debt-to-income is tight.. I owe 330k on my current house, and my husband works, but he's self employed, so we can't use his income to qualify for loans. I guess my fear is that a lender will tell me I'll be able to refi, but then after the fact, it won't go through for some reason, and I'll be stuck with high interest loans. Not sure what i would do then. Something to think about though

Emily McCabe · Answer

@Jason HirkoYes, that's what I was talking about. Thank you both for the feedback. Any idea if it would be a possibility to get a HELOC on my current home and use that to buy something, and then do a cash out refi like you were saying?

Jason Hirko · Answer

Correct me if I'm wrong, but you were talking about courthouse steps type auctions, not HUD/Fannie Mae kinds?

Mark Gallagher · Answer

@Emily McCabeYou could use financing, but if you don't close you're going to be out your deposit money, no questions asked.