www.REIClub.com — Wholesaling Real Estate Is One Of The Safer Ways To Start Investing In Real Estate. Here’s Why Beginner Investors Should Wholesale Real Estate… Hi, this is Frank Chen with REIClub.com, the only site you need as a real estate investor. Today I’ve got quick video on why Wholesaling Flipping Real Estate is good for beginner investors Qualifications: Wholesaling Property “Ease of Entry” Not a lot of… - Time - Experience - Money or credit - Resources - Looking to make Quick Cash with low risk Investment: Typical Wholesaling Properties Work Day - Time — Typically 1-3 Hours a day - Looking through ads/posting ads - Calling realtors - Drive-through neighborhoods - Attending REIA meetings/networking - Building a Buyers list - Market Analysis - pulling comps - Creating a Plan - - Money - Earnest money — as little as $1 - $1000 — get it back rather quickly Financial/Experience Gain from wholesaling houses: - Typically $1000 - $10000 / transaction (5-10 total hours of work per transaction) - Build relations — realtors, investors, title companies, - Learn the market - Assessing profit margins based on Repair costs - Familiarize yourself with purchase and sales agreements - Start building financial strength - Move on to other areas of real estate — rehabs, short sales, reo’s Wholesaling Property Risks: - Money in Deal - If using private mortgage lender, none of your own money is in the wholesale real estate deal - End buyer backs out - Buyers list setup …
Home Page > Finance > Funding For Short Sale Investors With No Money Down
Funding For Short Sale Investors With No Money Down
Posted: Apr 08, 2011 |
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The critical requirement to complete reo funding of a property or portfolio is that there is a committed and funded End Buyer in place. He keeps his money ready to fund at the end of it all. Whether funding is via cash or financing, a committed buyer with funding is necessary. Additionally, the C Buyer or End Buyer must be committed to purchasing the commercial or residential property or portfolio within a defined window of no greater than 1-4 days. This short term loan serves the purpose of bridging the gap and is also called transactional funding, thereby imp-lying that it helps in completing a transaction.
A Transactional Funding or Short Sale Funding scenario consists of the Commercial Real Estate Investor or Residential Real Estate Investor contractually securing the option to purchase a property whether it is a REO, Trophy Home, or Distressed Commercial Real Estate property. In the same way this Investor indulges in quick buying and selling of the property hoping to make more money. In our example, which is the norm or typical of Double Close Funding or double escrow closings, the B Party or Real Estate Investor is either not in a financial position to purchase the property with their own funds for resell with margin and/or would prefer to leverage the capital of another party- the hard money lender. Essentially, by opting to use our Transactional Funding solution the Real Estate Investor will secure the property with No Money Down.
This end buyer who is known as the C Party is now an Investor for $1,500,000 for the same property. So actually the C End buyer will create liquidity for the bridge loan client. Obtaining assignment of the property or portfolio can often be addressed by presenting the A Seller with a Proof of Funds Letter. We are very prompt in making proof of funding letter available. This is the prerequisite for making transactions under Title and Seasoning. It meets the requirement of the recent changes in Title and seasoning.
This is the basis of our funding. All expenses incurred on this transaction will be a part of our funding. This is also known as Double Closing. You or your company as a client incur a nominal profit share of 3% or less for the use of our standard Transactional Funding or Flash Cash bridge loan programs.
As a Transactional Funding Lender, we are well capitalized and able to address and legally naviagate recent changes in Title and Seasoning law. Both these transactions should be independent of each other. This funding should be done before the C end buyer buys it from A seller. Transactional Funding strategically serves the B Investor who may no longer use the C End Buyer’s funds (or is simply not in a position financially) to complete the profitable acquisition of property from A Sellers.
The Transactional Funding Lending source provides the necessary capital for the A to B transaction to successfully close the initial transaction of the Double Closing. A creditable company can be asked to close both transactions. The A Seller/Party will exit with a cash purchase from either institutional funding sources or private real estate investors- finalizing the A to B transaction. Now comes the turn of the B to C transaction to be finalized. Funding is based on the credibility of the C End buyer . Funding cannot be otherwise. As soon as the funds are credited into the Escrow account the C End buyer exemplifies his intentions. Once the amount is escrowed, we are quite sure of a successful transaction. Approval for a prospective opportunity is qualified by the validity of the parties involved A On an average the review process does not take more than a day .
EXTENDED TRANSACTIONAL FUNDING
Time limit can be enhanced. It is called Extended Transactional Funding. This is the period of closing interval for Hard Money lending. Time duration is the basic variation between the two fundings. 120 days are taken after the A to B closing is achieved. Transactional funding is the ideal alternate proposition.
Extended Transactional Funding example:
Our client has assignment of a property for $1,000,000. This project is worth $1,000,000. Here Flash Funding requirement is varied. This time period is not possible. The investor has a C Buyer ready with his commitment. This is the amount agreed upon, for the property. The duration in this example will require greater than 1-4 days. As the lender, we provide an extended/delayed form of short sale financing. We will fund the A to B transaction including closing costs, we will then allow upwards of 120 days for our client the real estate investor to close his B to C transaction with the C End Buyer. Extended Transactional Funding or Flash Funding for Short Sales will continue to evolve; providing creative solutions for Real Estate Investors. It is indeed an established resolution for short sale investors.
If you are interested in purchasing Real Estate Owned (REO) or short sale properties, then you need to understand the basics of transactional funding and proof of funds letters and how they relate to your real estate interests and activities. Essentially, the transactional funding refers to the funds borrowed for a very short period to transfer a property from the current owner, to the transaction coordinator, then to the new owner. Proof of funds letters are used to help secure financing and
If you’re a preforeclosure investor, with the tightening credit markets, you have no doubt noticed how much more difficult it is these days to close short sale deals.In the past, plenty of hard money options, along with double closings and simultaneous closings made closing short sales a breeze. However, with the credit crunch, mortgage fraud, and tighter restrictions with lenders and title companies, closing short sales isn’t as easy as it used to be.
Discussing new methods of financing to complete hard to do real estate transactions. Real estate investors have been struggling getting deals done after the banks changing business criteria.
With the change in the demands of the states the role of transactional funding has become important. The needs and the requirements of the federals officials and of the state have increased and this has made simultaneous closing, quick flicks and dry closings more difficult with time
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Many listings are for homes being sold on short sales, where the lender accepts less than what is owed on the mortgage to avoid the foreclosure process and having to resell the property.
The short sale is a way out for the distressed homeowner who is facing foreclosure or bankruptcy; two examples of situations that are very damaging to a credit score.
What a great deal for the real estate investor! Or is it? Unfortunately, the mortgage meltdown has caused the market to be saturated with foreclosures. This has put a lot of pressure on builders, developers, realtors and loan officers.
Loan officers are under pressure to close mortgages; builders and developers want to sell their properties; realtors need to sell their listings for commissions. The pressure has opened the door to real estate scams and mortgage fraud. As a result, mortgage guidelines have tightened, making it difficult for real estate investors to fund their deals.
Are you an investor who has completed the lengthy process of negotiating a short sale just to find out that you are unable to obtain the funding to close the deal? Do you have an end buyer; someone who has already went through the process of getting approved for a mortgage and all they need is you to do your part?
Honest real estate investors are running into roadblocks all over the place. Laws and guidelines are constantly changing creating more frustration as investors continue hoop-jumping their way through every transaction. Unless you have fat cash in the bank you will be faced with many difficulties in the real estate investing world.
What if there were a lender who could provide the funding for the first closing and then a title company who can do a simultaneous close to complete the process of buying the short sale, selling to the end buyer and paying off the debt all at the same closing table? Is this possible? Is it legal? What about seasoning issues and FHA guidelines? It sounds like one would have a better chance of hitting the lottery!
Jodi Funke has great news for the frustrated real estate investor. Her company can provide one-day funding to complete the short sale purchase and resale the same day. Imagine going to the closing table with no money, closing the deal and walking out with your profit. You can do this, legally and ethically, no matter what state you are working in. Visit http://www.cashforshortsales.com to learn how.
Jodi Funke is a transactional lender who understands this dilemma. “Lack of funds is the number one reason most real estate investors cannot close a short sale deal,” said Jodi. “We provide one-day funding for the investor to buy the property and our nationwide team of closing professionals, attorneys and title companies are experienced in doing back-to-back transactions so the investor can fund the deal and resell the property the same day.
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Negotiating with banks to buy properties for less than the mortgage balance can make you big profits in real estate investing. Not all short sales are potentially profitable, which some can make you lots of money.
This article walks you through the best sources of profitable short sales.
If you sell your property, your face the liability for capital gains tax. However, there is one way out. You can avoid payment of capital gains tax by taking advantage of exchange 1031 provisions. How to take this benefit?
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This time, make the most of the property is very critical, especially if you want to have a bigger profit at the end of the sales process and you want to make a quick sale with this property.
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Pre-foreclosure investors are most successful in funding and closing a short sale when they have the funds available to finance the deal. Lack of funding is the number one roadblock real estate investors face when performing short sale transactions.
Many real estate investors would love to buy foreclosed homes cheap, fix them up, and sell for a profit; others want to buy and sell the same day. Just think, the end result could be neighborhood recovery in areas suffering the worst effects of foreclosures
A land trust is an agreement where the trustee agrees to hold ownership of a piece of real estate for the benefit of another party or the beneficiary. The land trust involves two major components; the Trustee and the Beneficiary(s). Here is some information about the use of a land trust when working a short sale transaction:
This is a great time to buy real estate. The possibilities are endless. You can buy, fix and sell at a profit if you purchase the property at a low enough price.
Jodi Funke is a transactional lender who understands this dilemma. ?Lack of funds is the number one reason most real estate investors cannot close a short sale deal,? said Jodi. ?We provide one-day funding for the investor to buy the property and our nationwide team of closing professionals, attorneys and title companies are experienced in doing back-to-back transactions so the investor can fund the deal and resell the property the same day.
We put an offer on a short sale home. After a few months the bank and I went back and forth for a price and finally we came to an agreement. Now the investors need to approve it. How long does this take, what are the chances they will accept the offer? It has been almost three weeks and the closing date is in 11 days. Do I need to change the closing date?
Here are 5 good reasons to move away from residential short sales and prosper from the recession instead of being part of the mess.
1. Short sales usually don’t close for investors… As an investor your goal is to purchase a property well below market value and step into a large equity position at closing. In a short sale scenario, as most of us know, the homeowner owes more than the property is worth. You have to entice the lender to accept less than what they are owed so they don’t have to foreclose. The banks are not stupid; they have been around a long, long time. Do you really think that they are going to discount their loan amount to the point where they will let the homeowner off the hook and give you a substantial discount, all the while absorbing more and more of a loss for your benefit? No Way!
2. The homeowner’s distress will make you distressed… If you are dealing direct with the homeowners, watch out. Chances are very good that they are extremely distressed over the situation and in turn begin to distress you. You entered into a business deal to try to help yourself to a well deserved profit while at the same time helping the homeowner solve a major problem. As time goes on and their frustration grows due to constant delays and non responsive lenders, the pressure builds for them and you receive the brunt of it.
3. Your very valuable time is wasted… First you have to find the upside down seller’s, that’s not so hard. Then negotiate a price that will be profitable to you. Not so difficult, unless the seller does a little homework and realizes that their lender will more than likely require that they sign personally for the deficient balance. If their overall plan is to declare bankruptcy, it’s no big deal because they won’t care about the price, however if they have other assets, etc. they will want to get at least close to fair market value. In addition, if the property is in foreclosure and they consult an attorney during that process, more than likely they will file for bankruptcy protection as it will delay the foreclosure proceedings. Then you have a whole new set of delays and problems to deal with. The lender forwards the file to the bankruptcy department and there it stays until the bankruptcy is discharged or stayed and the foreclosure proceedings continue.
4. Financing for residential investment property is difficult to secure… Money for residential investment property is very difficult to secure, not to mention, if and when the short sale gets approved, the current homeowners lender will usually only give you 15 days to close at the accepted price. If you secured the financing at the outset of the contract, chances are that the commitment and/or pre approval issued is void because you are now many months down the line from when you first entered the contract. Plus the homeowner’s lender negotiated a higher net amount so you have to rework all the paperwork in a compressed time frame, in a financial market that takes longer to get commitments approved and closed. If you happen to succeed at negotiating a large discount from the lender, you still may fail at closing in the prescribed time frames.
5. In the end you will make very little, if any money with short sales… For the past 2 years all you hear about are short sales. “You’ll get rich buying short sales”, “it’s time to capitalize on the market”, “short sales are the only way to go”, etc. Nothing could be further from the truth. If you have purchased and/or attempted to purchase short sales, you know exactly what I’m talking about. If you are about to venture in to this arena, despite what you read here, I wish you the best of luck.
Conclusion: Don’t waste your time with distressed homeowners and short sales just because we are in a recession. There are tremendous opportunities to invest in Real Estate right now and they have nothing to do with short sales. As an Investor with over 25 years experience and someone who has owned 100’s of properties I can tell you with confidence that the current path to wealth in Real Estate is buying apartment buildings and large multi family projects. America is downsizing its lifestyle and moving to smaller, more affordable housing alternatives and the funding is there for us investors to make the purchases. I urge you to look into this; the results are magnified. One tenth the aggravation of short sales and ten times the profit.
Joe Florentine is managing member of US Apartment Financing and an accomplished Real Estate Investor with over 25 years experience. He has been featured in financial magazines, TV and many newspaper/print/Internet publications. He has recently entered a joint to teach high leverage financing techniques to help Real Estate Investors acquire large multi family projects. To learn more visit: http://www.learncommercialfinancing.com
Investors look ahead to brighter month
Most investors are looking forward to the month of June - and for good reason. The Dow Jones Industrial Average posted its worst May since 1940.
If you’ve been investing in real estate, and more specifically preforeclosures, then there’s no doubt that you’ve come across a short sale deal. A short sale is when the lender agrees to accept less than what is owed against the property in exchange for full acceptance of payment of the loan. In other words, if the loan balance is $400,000 but the bank accepts $300,000 as full payoff, then a short sale has occurred.
Many investors find short sales different to negotiate and complete. The reason is that lenders are constantly changing their rules and practices, and short sales by nature are complex and time consuming. This is a reason that many smart preforeclosure investors today choose to outsource their short sales.
Outsourcing your short sales is simple. You would still meet with the homeowner and get all of the necessary paperwork to ensure a complete short sale packet. But after that, the ease and simplicity of outsourcing takes over. The investor simply sends the complete short sale packet to their outsourcing company, and they are the ones that then do all of the work on behalf of the investor.
The investor’s time is freed up considerably, as they no longer have to sit on hold, fax paperwork, or do other mundane tasks associated with negotiating a short sale. The outsourced short sale company takes care of all of this work for the investor.
Outsourcing your short sales makes perfect sense as a real estate investor. Since the outsourcing company is working on many files for many different investors, they are building more relationships faster at a wide variety of lenders. They have a larger rolodex of contacts at more banks, and have a proven track record of closing deals with many lenders, thereby making their files and their deals more desirable for the lender to look at.
In today’s world of outsourcing, it’s no longer necessary for a real estate investor to negotiates his own short sales. In fact, it’s not a good use of their time. Preforeclosure investors should be focused on buying and selling properties, not negotiating short sales or faxing documents to lenders trying to get a short sale deal closed.
Outsourcing short sales allows real estate investors to work on more deals at once, and have a virtual team of experts on his staff, without the overhead. The best outsourced short sale companies are paid on performance, after they have negotiated the short sale deal to the price that the investor has set. This makes outsourcing a no risk proposition for the smart preforeclosure investor.
Terry Wygal is an expert on real estate investing in Short Sales and has several strategies for Closing Short Sale Deals and has been working with Justin Lee.
Many real estate buyers are aware that there are fantastic bargains available in the real estate market. The huge amount of bank foreclosures has led to a tidal wave of bank owned REO properties which has flooded the market with low priced properties. Astute investors are taking advantage of this situation to scoop up houses at bargain basement prices.
If you are considering investing in bank owned properties then you will need to be a cash buyer. This means that you are required to show “proof of funds” which is usually a bank statement which shows that you have the cash available to purchase the house.
If you don’t have the cash available then you will need to borrow the money from someone that does. If you have a relative or friend with access to cash they might be willing to lend you money to purchase a property in exchange for you giving them a first mortgage on the property. They will effectively become the bank and you will be required to make a monthly payment to them.
There are professionals in the real estate business that make these kinds of loans to people that are not relatives. They are called hard money lenders. The only difference between a hard money lender and a private investor is the interest rate. Borrowing from Aunt Sallie might cost you 8% per year in interest. A typical hard money mortgage in today’s market would be 15% plus 3 points up front.
Why would anyone borrow money at such a high interest rate? Let’s look at an example. Assume that you could purchase a bank owned REO property for $40,000 when the house has a true market value to a non cash buyer of $80,000. Paying 15% interest on a $40,000 loan amounts to a monthly payment of only $500.
Assume that you waited 90 days for seasoning of title and then sold the property to an FHA first time homebuyer for $79,900. Assume that you paid a commission of 6% to the realtor and another 6% to pay for the buyers closing costs. You would still net $70,000 from this transaction. After paying off the hard money lender the $40,000 that you borrowed, you would still be left with a profit of $30,000. Even if you held the house for six month before finding a buyer you would only have spent $500 per month in interest for 6 months. Your total interest cost would only have been $3,000. This would leave you with a net profit of $27,000.
Or expressed another way, using no money down (borrowing all of the money) you could potentially make a profit of $27,000. How easy would it be to sell a house like this to a first time home buyer? The answer is it would be extremely easy. The buyers are putting down only $3,000 (3 ½%) to buy a house with a monthly mortgage payment which is about the same as their monthly rent. You are paying all of their closing costs. And the government will give them an $8,000 tax credit if they purchase before the end of 2009. It is a win/win for everyone. The bank gets to sell their property quickly to a cash buyer. The cash buyer gets to flip the property and make a quick profit and the end FHA buyer gets to own a home for the same monthly payment as rent.
The trick to the above transaction is to find an $80,000 property that you can buy for $40,000. This is the part that requires training, knowledge and experience. Finding deals like this is an art form and the people that find these deals are known as “bird dogs” or “property scouts”.
Many bird dogs sell their deals to cash investors for a small profit. This is known as wholesaling. For example a wholesaler might contract to purchase the above house for $40,000 and then sell it for $45,000 to another cash investor. This way, the wholesaler does not need to borrow money from a hard money lender. The wholesaler simply finds a deal, signs a contract to buy it and then flips the contract to a cash investor for a profit. This is known as “assigning a contract” and the profit that is paid to the wholesaler is known as an “assignment fee”.
Banks do not want wholesalers flipping contracts on bank owned properties. For this reason, banks do not allow assignable contracts. This means that a wholesaler cannot assign a bank owned property to another cash investor. The reality is that there are still ways that a property can be assigned. One way is to purchase the property in a Land Trust and then assign the beneficial interest in the land trust. Another way is to purchase the property in an LLC and then assign the membership interest in the LLC. However the problem with these methods is that the end buyer might not want to have a land trust or an LLC.
For this reason, the best way to sell a bank owned property to another cash investor is to have what is known as a double closing. This means that the wholesaler essentially buys the house from the bank and then simultaneously on the same day sells it to another cash investor. The disadvantage is that the wholesaler will be paying double closing costs.
If a wholesaler has a signed contract and is wholesaling the deal to an end buyer, then if the wholesaler is short on cash they might need what is known as “transactional funding”. Transactional funding is perfect for bank owned properties and short sales that a wholesaler is flipping to an end buyer. Since banks do not allow assignable contracts the wholesaler is going to need to schedule a double closing with the end buyer. Double closings also known as simultaneous closings allow a wholesaler to schedule two back to back closings for the same property on the same day. The wholesaler will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds) is needed.
Our company offers transactional funding to all of our Private Mentoring Students. However our students need to schedule both closing with our title company in order for us to offer the transactional funding. We will only offer transactional funding if both closings are with our title company (Independence Title & Escrow).
If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the bank (seller) and you (buyer). The second contract is between you (seller) and your end buyer (buyer). The end buyer is the person that will ultimately be the long term owner of the property.
Example:
A – Bank B – You C – End Buyer
Assume that you have a contract with the bank to purchase a bank owned property at $40,000 (first contract). This is known as the A-B transaction.
You market this property to your cash buyers and you find a buyer at $45,000. You sign a contract with this buyer with you being the seller and them being the buyer (second contract). This is known as the B-C transaction.
The difference between the two contracts (after deducting closing costs) is your profit which you will walk away with at the closing. Since there are two contracts there are two closings. This means you will pay double closing costs.
The transactional funding fee that we charge is 2% +$495 with a minimum fee of $1,250. For example if you were to request $40,000 your fee would be $800+$495=$1,295. We will only provide transactional funding if you use our title company (Independence Title) for both closings.
Lex Levinrad has been a full time distressed real estate investor since 2003. He has been involved in buying, rehabbing, wholesaling, renting, and selling hundreds of houses in South Florida. Lex is the founder and CEO of the Distressed Real Estate Institute, which trains beginning distressed real estate investors about how to find wholesale real estate deals. Lex specializes in buying foreclosures and bank owned REO homes. Lex offers private mentoring, bus tours, boot camps and home study courses for real estate investors. Lex is an accomplished national public speaker and has shared the stage with some of the countries best real estate speakers including Frank McKinney. For more information about the Distressed Real Estate Institute please visit http://www.lexlevinrad.com or call 800-617-2884.
Many real estate buyers are aware that there are fantastic bargains available in the real estate market. The huge amount of bank foreclosures has led to a tidal wave of bank owned REO properties which has flooded the market with low priced properties. Astute investors are taking advantage of this situation to scoop up houses at bargain basement prices.
If you are considering investing in bank owned properties then you will need to be a cash buyer. This means that you are required to show “proof of funds” which is usually a bank statement which shows that you have the cash available to purchase the house.
If you don’t have the cash available then you will need to borrow the money from someone that does. If you have a relative or friend with access to cash they might be willing to lend you money to purchase a property in exchange for you giving them a first mortgage on the property. They will effectively become the bank and you will be required to make a monthly payment to them.
There are professionals in the real estate business that make these kinds of loans to people that are not relatives. They are called hard money lenders. The only difference between a hard money lender and a private investor is the interest rate. Borrowing from Aunt Sallie might cost you 8% per year in interest. A typical hard money mortgage in today’s market would be 15% plus 3 points up front.
Why would anyone borrow money at such a high interest rate? Let’s look at an example. Assume that you could purchase a bank owned REO property for $40,000 when the house has a true market value to a non cash buyer of $80,000. Paying 15% interest on a $40,000 loan amounts to a monthly payment of only $500.
Assume that you waited 90 days for seasoning of title and then sold the property to an FHA first time homebuyer for $79,900. Assume that you paid a commission of 6% to the realtor and another 6% to pay for the buyers closing costs. You would still net $70,000 from this transaction. After paying off the hard money lender the $40,000 that you borrowed, you would still be left with a profit of $30,000. Even if you held the house for six month before finding a buyer you would only have spent $500 per month in interest for 6 months. Your total interest cost would only have been $3,000. This would leave you with a net profit of $27,000.
Or expressed another way, using no money down (borrowing all of the money) you could potentially make a profit of $27,000. How easy would it be to sell a house like this to a first time home buyer? The answer is it would be extremely easy. The buyers are putting down only $3,000 (3 ½%) to buy a house with a monthly mortgage payment which is about the same as their monthly rent. You are paying all of their closing costs. And the government will give them an $8,000 tax credit if they purchase before the end of 2009. It is a win/win for everyone. The bank gets to sell their property quickly to a cash buyer. The cash buyer gets to flip the property and make a quick profit and the end FHA buyer gets to own a home for the same monthly payment as rent.
The trick to the above transaction is to find an $80,000 property that you can buy for $40,000. This is the part that requires training, knowledge and experience. Finding deals like this is an art form and the people that find these deals are known as “bird dogs” or “property scouts”.
Many bird dogs sell their deals to cash investors for a small profit. This is known as wholesaling. For example a wholesaler might contract to purchase the above house for $40,000 and then sell it for $45,000 to another cash investor. This way, the wholesaler does not need to borrow money from a hard money lender. The wholesaler simply finds a deal, signs a contract to buy it and then flips the contract to a cash investor for a profit. This is known as “assigning a contract” and the profit that is paid to the wholesaler is known as an “assignment fee”.
Banks do not want wholesalers flipping contracts on bank owned properties. For this reason, banks do not allow assignable contracts. This means that a wholesaler cannot assign a bank owned property to another cash investor. The reality is that there are still ways that a property can be assigned. One way is to purchase the property in a Land Trust and then assign the beneficial interest in the land trust. Another way is to purchase the property in an LLC and then assign the membership interest in the LLC. However the problem with these methods is that the end buyer might not want to have a land trust or an LLC.
For this reason, the best way to sell a bank owned property to another cash investor is to have what is known as a double closing. This means that the wholesaler essentially buys the house from the bank and then simultaneously on the same day sells it to another cash investor. The disadvantage is that the wholesaler will be paying double closing costs.
If a wholesaler has a signed contract and is wholesaling the deal to an end buyer, then if the wholesaler is short on cash they might need what is known as “transactional funding”. Transactional funding is perfect for bank owned properties and short sales that a wholesaler is flipping to an end buyer. Since banks do not allow assignable contracts the wholesaler is going to need to schedule a double closing with the end buyer. Double closings also known as simultaneous closings allow a wholesaler to schedule two back to back closings for the same property on the same day. The wholesaler will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds) is needed.
Our company offers transactional funding to all of our Private Mentoring Students. However our students need to schedule both closing with our title company in order for us to offer the transactional funding. We will only offer transactional funding if both closings are with our title company (Independence Title & Escrow).
If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the bank (seller) and you (buyer). The second contract is between you (seller) and your end buyer (buyer). The end buyer is the person that will ultimately be the long term owner of the property.
Example:
A – Bank B – You C – End Buyer
Assume that you have a contract with the bank to purchase a bank owned property at $40,000 (first contract). This is known as the A-B transaction.
You market this property to your cash buyers and you find a buyer at $45,000. You sign a contract with this buyer with you being the seller and them being the buyer (second contract). This is known as the B-C transaction.
The difference between the two contracts (after deducting closing costs) is your profit which you will walk away with at the closing. Since there are two contracts there are two closings. This means you will pay double closing costs.
The transactional funding fee that we charge is 2% +$495 with a minimum fee of $1,250. For example if you were to request $40,000 your fee would be $800+$495=$1,295. We will only provide transactional funding if you use our title company (Independence Title) for both closings.
Lex Levinrad has been a full time distressed real estate investor since 2003. He has been involved in buying, rehabbing, wholesaling, renting, and selling hundreds of houses in South Florida. Lex is the founder and CEO of the Distressed Real Estate Institute, which trains beginning distressed real estate investors about how to find wholesale real estate deals. Lex specializes in buying foreclosures and bank owned REO homes. Lex offers private mentoring, bus tours, boot camps and home study courses for real estate investors. Lex is an accomplished national public speaker and has shared the stage with some of the countries best real estate speakers including Frank McKinney. For more information about the Distressed Real Estate Institute please visit http://www.lexlevinrad.com or call 800-617-2884.
Many real estate buyers are aware that there are fantastic bargains available in the real estate market. The huge amount of bank foreclosures has led to a tidal wave of bank owned REO properties which has flooded the market with low priced properties. Astute investors are taking advantage of this situation to scoop up houses at bargain basement prices.
If you are considering investing in bank owned properties then you will need to be a cash buyer. This means that you are required to show “proof of funds” which is usually a bank statement which shows that you have the cash available to purchase the house.
If you don’t have the cash available then you will need to borrow the money from someone that does. If you have a relative or friend with access to cash they might be willing to lend you money to purchase a property in exchange for you giving them a first mortgage on the property. They will effectively become the bank and you will be required to make a monthly payment to them.
There are professionals in the real estate business that make these kinds of loans to people that are not relatives. They are called hard money lenders. The only difference between a hard money lender and a private investor is the interest rate. Borrowing from Aunt Sallie might cost you 8% per year in interest. A typical hard money mortgage in today’s market would be 15% plus 3 points up front.
Why would anyone borrow money at such a high interest rate? Let’s look at an example. Assume that you could purchase a bank owned REO property for $40,000 when the house has a true market value to a non cash buyer of $80,000. Paying 15% interest on a $40,000 loan amounts to a monthly payment of only $500.
Assume that you waited 90 days for seasoning of title and then sold the property to an FHA first time homebuyer for $79,900. Assume that you paid a commission of 6% to the realtor and another 6% to pay for the buyers closing costs. You would still net $70,000 from this transaction. After paying off the hard money lender the $40,000 that you borrowed, you would still be left with a profit of $30,000. Even if you held the house for six month before finding a buyer you would only have spent $500 per month in interest for 6 months. Your total interest cost would only have been $3,000. This would leave you with a net profit of $27,000.
Or expressed another way, using no money down (borrowing all of the money) you could potentially make a profit of $27,000. How easy would it be to sell a house like this to a first time home buyer? The answer is it would be extremely easy. The buyers are putting down only $3,000 (3 ½%) to buy a house with a monthly mortgage payment which is about the same as their monthly rent. You are paying all of their closing costs. And the government will give them an $8,000 tax credit if they purchase before the end of 2009. It is a win/win for everyone. The bank gets to sell their property quickly to a cash buyer. The cash buyer gets to flip the property and make a quick profit and the end FHA buyer gets to own a home for the same monthly payment as rent.
The trick to the above transaction is to find an $80,000 property that you can buy for $40,000. This is the part that requires training, knowledge and experience. Finding deals like this is an art form and the people that find these deals are known as “bird dogs” or “property scouts”.
Many bird dogs sell their deals to cash investors for a small profit. This is known as wholesaling. For example a wholesaler might contract to purchase the above house for $40,000 and then sell it for $45,000 to another cash investor. This way, the wholesaler does not need to borrow money from a hard money lender. The wholesaler simply finds a deal, signs a contract to buy it and then flips the contract to a cash investor for a profit. This is known as “assigning a contract” and the profit that is paid to the wholesaler is known as an “assignment fee”.
Banks do not want wholesalers flipping contracts on bank owned properties. For this reason, banks do not allow assignable contracts. This means that a wholesaler cannot assign a bank owned property to another cash investor. The reality is that there are still ways that a property can be assigned. One way is to purchase the property in a Land Trust and then assign the beneficial interest in the land trust. Another way is to purchase the property in an LLC and then assign the membership interest in the LLC. However the problem with these methods is that the end buyer might not want to have a land trust or an LLC.
For this reason, the best way to sell a bank owned property to another cash investor is to have what is known as a double closing. This means that the wholesaler essentially buys the house from the bank and then simultaneously on the same day sells it to another cash investor. The disadvantage is that the wholesaler will be paying double closing costs.
If a wholesaler has a signed contract and is wholesaling the deal to an end buyer, then if the wholesaler is short on cash they might need what is known as “transactional funding”. Transactional funding is perfect for bank owned properties and short sales that a wholesaler is flipping to an end buyer. Since banks do not allow assignable contracts the wholesaler is going to need to schedule a double closing with the end buyer. Double closings also known as simultaneous closings allow a wholesaler to schedule two back to back closings for the same property on the same day. The wholesaler will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds) is needed.
Our company offers transactional funding to all of our Private Mentoring Students. However our students need to schedule both closing with our title company in order for us to offer the transactional funding. We will only offer transactional funding if both closings are with our title company (Independence Title & Escrow).
If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the bank (seller) and you (buyer). The second contract is between you (seller) and your end buyer (buyer). The end buyer is the person that will ultimately be the long term owner of the property.
Example:
A – Bank B – You C – End Buyer
Assume that you have a contract with the bank to purchase a bank owned property at $40,000 (first contract). This is known as the A-B transaction.
You market this property to your cash buyers and you find a buyer at $45,000. You sign a contract with this buyer with you being the seller and them being the buyer (second contract). This is known as the B-C transaction.
The difference between the two contracts (after deducting closing costs) is your profit which you will walk away with at the closing. Since there are two contracts there are two closings. This means you will pay double closing costs.
The transactional funding fee that we charge is 2% +$495 with a minimum fee of $1,250. For example if you were to request $40,000 your fee would be $800+$495=$1,295. We will only provide transactional funding if you use our title company (Independence Title) for both closings.
Lex Levinrad has been a full time distressed real estate investor since 2003. He has been involved in buying, rehabbing, wholesaling, renting, and selling hundreds of houses in South Florida. Lex is the founder and CEO of the Distressed Real Estate Institute, which trains beginning distressed real estate investors about how to find wholesale real estate deals. Lex specializes in buying foreclosures and bank owned REO homes. Lex offers private mentoring, bus tours, boot camps and home study courses for real estate investors. Lex is an accomplished national public speaker and has shared the stage with some of the countries best real estate speakers including Frank McKinney. For more information about the Distressed Real Estate Institute please visit http://www.lexlevinrad.com or call 800-617-2884.
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