In today's real estate market, it is no longer easy to obtain hard money like it used to be a few years ago. Lots of hard money lenders have gone out of business, while the ones in business have new strict lending requirements.
Before they can finance you, you have to make advance payments in points and high interest rates. Your profits are therefore drastically affected. These days lots of them need a good credit score before being funded.
This has stopped a lot of real estate investors from doing deals they once used to finance with hard money. In this article we cover how you can finance your REOs and short sales.
You must show proof of funds before banks can allow the deal to go through. Most real estate investors used hard money as proof of funds. Once you have lined up a reliable source of private money, this can be your proof of funds for your REOs.
If you wholesale properties the process will work the same as with other types of funding except you are using private money. Assigning a contract cannot work in this case. You have to buy and sell the property through simultaneous closing.
The process goes something like this:
1) Identify the right property
In order to do a simultaneous closing, you must choose properties that will give you a sizable amount of profit. This is because you must pay some closing costs both when buying and selling the property. Your big profit margin should absorb these costs.
I prefer to have at least $10,000 for such a transaction.
2) Identify your wholesale buyer
The wholesale buyer buys the property from you, sometimes a real estate investor. You usually end up selling your properties at a discount price.
Always get proof of funds or your deals might not close!
You will then sign a regular purchase sale agreement with them.
Your buying price will have to be lower than your selling price.
3) Get your private money to the title company
Ask your private money investor to wire the money to the title company. This money will be used to close the first transaction.
Depending on what you have agreed with your private money investor, you will pay a small percentage between 1-2% for this transactional funding.
4) Your title company closes the two deals
Once the deal is closed, you will walk home with the difference between your buying and selling price less closing costs and transactional funding.
You make more money since you have less fees than when using hard money. Here is an example of how this type of transaction works:
$100,000 - after repaired value
$50,000 - bank accepts your short sale offer
$75,000 - price you sell to your buyer
$25,000 your profit at closing
Costs:- $1000 private money fees plus any closing fees
As a cash buyer, it also means you can get your properties much cheaper than conventional buyers.
You can use this method for both short sales and REOs. Lots of private money lenders can lend you all the money you need for such deals.
Simply said, the private money buys property from the seller and you sell it the same day to your buyer and walk away with the difference.
Author Resource:
Simon Macharia invests in real estate and has done most real estate investing transactions. Learn how a good real estate website can attract private money investors for your business.
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