Commercial Loans Blog

Commercial Lines of Credit from Hard Money Brokers

Posted by George Blackburne on Wed, Mar 24, 2010

Loans Used to Buy Foreclosed Homes in Bulk

An enterprising hard money broker in Southern California is issuing lines of credit to homebuilders, investors and speculators to buy foreclosed homes in bulk. As the lender described it:

"We have private money available to provide homebuilders/investors with collateralized lines of credit to purchase, renovate, and sell SFR’s purchased out of foreclosure. These homebuilders and investors are typically are well capitalized (very wealthy) and are looking for 1st TD debt at an advance rate of +/- 60% of cost in order to increase their volume and overall returns as a less expensive alternative to finding equity partners. Credit line applications in process range from $1 MM to $12 MM. Structures include: acceptance of replacement collateral at unit reconveyance, or short term loans which are re-written with new collateral at payoff. We are currently doing this business in both California and Arizona."

"How this works is that we have customers in the business of acquiring entry level single family homes at trustee sales throughout California. Following acquisition of these wholesale, in-fill purchases, the homes are renovated and listed for sale. In-house brokers within our borrower’s company than list those homes on the MLS and work with buyer brokers to sell them. Typical cash-on-cash returns in this operation are currently +/- 20%."

"Depending on deal structure, we lend between 60% - 80% of the purchase price of the homes purchased, and the borrower puts in all the renovation costs in cash. Total annualized cost for the credit line is between 15% - 22% all-in. The loans are usually, non-recourse depending on the advance rate.  The lines typically run in 6 month segments to one year. Origination points are paid when the line is used and houses are purchased. The line collateral is a 1st TD on all homes purchased within the line.

"The leverage is substantially accretive. Levered returns can increase to well above 100% as long as the product is turned (purchased/renovated/sold) within a 90-120 period and the money can go back to work purchasing new homes. Sale of the homes pay down the line 105% of the wholesale purchase price."

"There is a lot of action in this business currently. Particularly, in those states that have been hard hit and have tremendous foreclosure volume like CA, AZ, NV, FL. I have one borrower who has purchased over 350 homes in the last 9 months and moved over $85 MM of product. The profit in this borrower’s realm of operation, Southern California, is approximately +/- $40,000 per unit."

If you are a homebuilder or an investor and would like an introduction to this lender, please call me, George Blackburne III, at 574-360-2486 or email me at [email protected]. I get bombarded with emails (but I love to hear from borrowers and brokers), so its easy for me to miss an email. I recommend that you use the title of this article, Commercial Lines of Credit from Hard Money Brokers, in your subject line.

Topics: commercial line of credit, foreclosed homes, line of credit, renovation line of credit, REO loan