OfflineOne of the most popular forms of wholesaling real estate for investors involves the use of transaction funding. Wholesaling is the flipping of properties and can involve closings in very short time frames. Simultaneous closings are no longer viable with new financing laws and careful title companies, so purchasing and the sale in a wholesaling situation are frequently closed within minutes or hours of each other. Let’s use and example:
You’re a wholesaler and you’ve located a distressed homeowner who really needs to sell in a hurry and they also are willing to take a price that allows you to flip the property to a long term rental investor with a nice $10,000 profit for you. The seller will take $179,000, and you’ve located a rental investor who will pay $194,000. Your share of closing costs is only around $1500. $194,000 – $179,000 – $1500 = $13,500. However, you don’t have the cash to buy the home until you can sell to your buyer
The only way you could make this work was to execute a purchase agreement with the homeowner which will require that you close and purchase the home before you can sell it to your investor buyer and close that transaction. You have developed a relationship with a transaction funding company. They specialize in this type of short term funding for investors. They provide the funds to purchase the home from the current owner and close that deal.
Then they collect their fees, a percentage of the amount they’ve advanced to you, at the second closing. The fees in this case are $3500. This may seem high for a loan that’s only in existence for a few hours, but it’s well worth it to you and your investor buyer, as everybody wins in these transactions.
At the second closing, your buyer pays $194,000, and the buyer’s share of the closing costs. The transaction funding company takes their $3500 fee, and you get the balance less your share of other costs, which is $10,000. Keep in mind that your only cash invested in this deal was the earnest money deposit you provided when signing the contract to buy the property. It’s a great profit for holding your home investment for just a few hours.Clark
Yep,
Just means that you have to factor in the Transactional Funding cost when you run your numbers to come up with your offer.
Great info! Thanks for sharing!
Stephan Roberts
"In absence of clearly defined goals, we become strangely loyal to performing daily acts of trivia!"
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Yes you write Mr.randy bailiff, you have described it very beautifully. I like the way you mentioned each and every points.
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Ok I have a question I have a motivated seller and lock up the deal @ a price that is 25% below f.m.v..@ 75k and I find a buyer willing and able to purchase for 95k but is buying with traditional financing. Would it make a difference for me getting paid & how?
If it does what would be the best strategy to making money with a buyer that is financing and not a cash buyer?
A-Raz22
You asked, "Ok I have a question I have a motivated seller and lock up the deal @ a price that is 25% below f.m.v..@ 75k and I find a buyer willing and able to purchase for 95k but is buying with traditional financing. Would it make a difference for me getting paid & how?
If it does what would be the best strategy to making money with a buyer that is financing and not a cash buyer?"
Let's break this down.
First congratulations on locking up the deal with a contract I would assume for 25% below the market.
You getting paid from the difference in between the 75-95.
If they are using traditional financing that is not a problem on your end if you are doing a double transaction using transactional funding.
With www.insiderscash.com you will be able to take both contracts to them and see about your funding options.
See what the fees are and then move forward to get the deal done.