Challenges With Real Estate Investing
A few months ago, I surveyed my list asking them about the challenges they were having with investing in real estate. One of the biggest challenges they were facing was that they didn’t know where to get the money to fund their deals once they found a great deal.
So I want to talk briefly about transactional funding and some other ways to get funding for your deals. Banks these days are just not lending like they used to, plus there are better ways to fund deals that are less risky for the investor. If getting funding is one of the challenges that is holding you back from investing right now, I have the solution. Funding is the easy part, trust me.
One of the easiest ways to make money right now is through wholesaling. Buying up properties at discounts and selling them to other investor/rehabber/landlords for a profit. You can do this through short sales, REO’s and even auctions. The word has been out for several years now that the U.S. is on sale, so there are a lot of “out of the country” investors looking for great deals. So buyers are everywhere.
It’s no secret anymore that great deals are all over the country and the funding is the easy part. Blackstone is the largest private-equity firm that has spent $5 billion on more than 30,000 distressed houses betting that the market will come back. They just announced they are going to expand their bet on the housing recovery by lending to other landlords. This is great news for landlords that want to expand their portfolio, but what about you? Where are you going to get the money?
Transactional Funding For Your Deals
The first funding solution I want to talk about is transactional funding. This works on almost any type of real estate deal. Short sales, REO’s, Bulk REO’s, Probate, Commercial you name it… as long as your exit strategy is to sell it to an end buyer. If your exit strategy is anything different than flipping to an end buyer, then transactional funding will not work. It wasn’t designed to be a long term loan.
Transactional funding was designed to be a quick way to get money from a 3rd party just long enough to satisfy the banks requirements of it being a separate transaction. Then the end buyer comes in immediately after and closes his end of the deal. So there are two separate and distinct transactions but the closings happens back to back within minutes of each other unless there are some deed restrictions, which on occasion there are.
Typical transactional funding fees start at 2% if everything closes on the same day. In some cases, extended funding is needed because the banks have restrictions or hold periods. This isn’t a problem either. However, the longer the funds are needed, the higher the % you have to pay to use the money. This is why cash buyers are really the only way to go, because sometimes the end buyers lender may have certain seasoning requirements as well and it can really start cutting into your profits.
So if you ever need funding for your quick flips, we offer transactional funding for everyone. Go here for details…
Big Brothers Bank Account
When I first started investing, I didn’t have much cash. My credit was decent, but it’s not like I was making a ton of money to go off my income. I did however have a relative, (it was actually my wifes Uncle) that was much older than me and had some money. After I told him what I was doing and actually showed him the property, he agreed to take the risk and add me to his bank account. We didn’t even have the same last name. But when they asked how I was planning to fund the deal, I showed them my bank account or his bank account that had me on it.
I used his money to fund the deal. It was a small foreclosure deal ($45,000) that someone brought to me on a referral. I turned around 3 weeks later after doing nothing to the property and sold it for $85,000 to a cash buyer who was extremely excited because he found a great deal. It was a cabin and cabins in this area were selling for $200,000. But it needed a lot of work and I didn’t want to risk more money rehabbing the thing.
Had I known about transactional funding, it would have cost me about 5% to use it for 3 weeks. That would have been about $2250. Instead, since I partnered with this Uncle on the deal, we each made off with about $18,000 after closing costs. But I created a great relationship with him and he was anxious to do more needless to say. In essence, we were partners. So, depending on the situation and exit strategy, one might work better than the other.
There are also other ways to get funding. Using private money or hard money for example. Just remember this. The more risky the deal, the higher % you will pay because the risk is with the person loaning the money.
I hope this helps. You should never have to worry about funding again if you are doing quick flips.
Let me know if you have any questions.