I have terrible credit, no credit cards and not even a bank account. Is it possible to still make money in real estate or short sales? I imagine you bring in an investment partner, right?
Most people who have not yet invested in real estate think that financing is the hardest part to investing and I am willing to bet this is the biggest obstacle that has kept them from starting in the first place. I believe the biggest obstacle is finding the deal. When you find a good deal, the money always comes.
There are actually lots of ways to creatively finance or make money in short sales.
Here are a few…
- Hard Money Lenders – These are individuals who will lend you money based on the deal. Typically the deal qualifies for the loan. However, there are very strict guidelines when borrowing this money and typically they will lend up to 70% LTV. This is a great resource if you have poor credit. The best way to find these hard money lenders is to contact a local title company and have them refer you to a few. You can visit our site on how to choose the right hard money lender. http://www.foreclosureuniversity.com/studycenter/freereports/hard_money_lenders.php
- Private Money Lenders – These are individuals who are very similar to hard money lenders except that you know them. It could be family, friend, or a neighbor. If they are a family member and they trust you, they can actually add you to their bank account. If they have a decent amount, you can use this as proof of funds to fund your deals. Their money is safe because money is never exchanged until the end buyer closes on the deal first. It’s a win-win for everyone.
- Partners – These are individuals who you may tell about the deal and offer to partner on it with you. Either they know someone who has the money to fund the deal or they will use their credit to qualify for financing. They usually have great credit scores and can get loans. Typically they ask for 50% of the profits though.
- Home Equity Line of Credit (HELOC) – This option is only available to those who have existing homes with equity and good credit scores. There are some financial institutions that are willing to lend up to 85% of the value of your home. If you have a HELOC that you can use to purchase property, you are never charged interest until you actually use it. So it’s available whenever you need it. With this kind of leverage, you can buy properties cash and avoid excess fees. Just make sure you know what you are doing and it’s used wisely because now you’re at risk.
- Transactional Funding. Probably the best choice for most investors these days because it’s very cost effective, easy to get and doesn’t require credit checks or income verifications.
Transactional Funding is where a buyer uses funds (wet funds) for a short amount of time, usually 24 hours or less, to facilitate a transaction. More and more investors are using transactional funding for short sales and REO flips because the fees are usually lower, there’s never any risk to their credit and there’s not as much red tape because they’re not qualifying for a loan.
See it use to be that investors would flip their deals by doing a simultaneous closing and use their end buyers funds to fund the first transaction between them and the seller. This was all highly used until 2008 when title companies began to crack down on these types of transactions. They wanted the investor to fund the initial purchase with the seller, then they would do another transaction a short time later with the end buyer.
As these title companies began to tighten up their rules, investors began to seek other methods, which would allow them to use wet funds to purchase the property from the seller and in turn sell the property the same day to an end buyer, which would satisfy the demands of title companies. Keep in mind this type of funding is usually needed when doing Short Sales or purchasing REO properties from the bank because your not allowed to assign contracts when dealing with banks. So this is how it happens…
If we were the investors, doing a back-to-back closing, we would be buying from “A” which is the bank. We the investors are “B”. We would be selling to our end buyer who is “C”. So we are buying from “A” on the same day we are selling to “C” or in other words a back-to-back or same day closing. And it happens all the time.
As Transaction Funding becomes more and more popular, let me share with you some advantages and disadvantages. With Transaction Funding it doesn’t matter what your credit score is because your credit is never pulled. This is very advantageous to beginning investors or even those who have fallen on hard times and have a less than perfect credit score. It means anyone who breathes can get funding.
It also means you don’t need money because it’s being supplied by the Transactional Funding partner (us). They even supply you with a Proof of Funds letter showing the bank you can in fact close on the property. There is no risk on your part because you’re not applying for a loan or using any of your money to fund the deal.
The fees are much lower in most cases, compared to hard money or private money lenders and especially if you have a partner because they typically want 50%. You can expect anywhere from 2 – 3 points on the amount you borrow if it’s a same day deal. Sometimes they will charge you a minimum amount if it’s under $100,000. Some also have a per transaction fee between $400 – $500 and others don’t. All in all, it will allow you to keep more of your profits, which is a good thing.
The disadvantages are that if you don’t have a CASH buyer, it may take a week or more longer to close, which means you’ll have to pay a few more points. You are literally on title for maybe a few hours, if that. So you have to have your end buyer lined up ready to close or the deal never gets funded. Which means your end buyer has to be qualified and the lender must be willing to fund regardless of title seasoning.
We offer same day funding for Real Estate Investors. We are the most competitive around… see for yourself!