How To Use Private Money To Finance Reos And Short Sales

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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.

In most cases, you have to make advance payments in points before being funded in addition to high interest rates. Of course this results to less profits. These days lots of them need a good credit score before being funded.

Lots of real estate investors have stopped doing the deals they used to do with hard money because of this. In this article we cover how you can finance your REOs and short sales.

Banks always need to see proof of funds before they can allow the deal to go through. A lot of real estate investors used to depend on hard money lenders for this. Once you have lined up a reliable source of private money, this can be your proof of funds for your REOs.

If you are a wholesale real estate investor, the process will work the same except source of funds will be private money. In this case, you cannot assign a contract to your investor buyer. You have to buy and sell the property through simultaneous closing.

Here's how the process works.

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. These costs should be absorbed by a big profit margin.

A profit of $10,000 and above is good enough.

2)Identify your wholesale buyer
The wholesale buyer buys the property from you, sometimes a real estate investor. In most cases you will sell this house at a discount or wholesale price.

Always get proof of funds or your deals might not close!

The contract you sign with them will be the regular purchase/sale agreement where they buy the property from you.

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 is the money you will use to close the first transaction.

This transactional funding should cost you between 1-2%.

4)Your title company closes the two deals
At closing, your profit is the difference between your selling price and your buying price, less transactional fees and closing costs.

Since your fees are much less, you end up making more 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

Since you are a cash buyer, you typically get your properties cheaper than regular buyers.

You can use this method for both short sales and REOs. As long as the numbers make sense, your private money can buy you lots of deals this way.

In other words you use the private money as the source of funds to buy the property from the bank, then flip it on the same table to a cash buyer such as a real estate investor.

About the Author:
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.



Article Originally Published On: http://www.articlesnatch.com


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