How To Finance Reos & Shortsales With Private Money

In today's real estate market, it is no longer easy to obtain hard money like it used to be a few years ago. Some hard money lenders have gone belly up, while the ones in business have tightened their underwriting procedures. Before they can finance you, you have to make advance payments in points and high interest rates. This means less profits. Most even need good credit to lend hard money nowadays! This has stopped a lot of real estate investors from doing deals they once used to finance with hard money. This article shows you how to use private money to finance REOs and short sales.

In today's real estate market, it is no longer easy to obtain hard money like it used to be a few years ago. Some hard money lenders have gone belly up, while the ones in business have tightened their underwriting procedures.

Before you get funded, you have to make payments in points plus other fees in addition to high interest rates. Your profits are therefore drastically affected. Most even need good credit to lend hard money nowadays!
Most real estate investors no longer do the deals they used to finance with hard money because of this. This article shows you how to use private money to finance REOs and short sales.

When buying a property, you must show the bank proof of funds before they can allow it to go through. A letter from a hard money lender used to act as proof of funds. Your proof of funds can be your private money source.

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. You need a good amount of profit to do a simultaneous closing. This is because you must pay some closing costs both when buying and selling the property. These fees can add up and eat up your profit.  I prefer to have at least $10,000 for such a transaction.

2) Identify your wholesale buyer. The wholesale buyer buys the property from you, sometimes a real estate investor. These properties are usually sold at wholesale prices. Make sure the buyer shows you proof of funds or the deal might not close! The contract you sign with them will be the regular purchase/sale agreement where they buy the property from you.  Your selling price will of course be higher than your buying price.

3) Get your private money to the title company
Get the private money investor wire the money to the title company. The first transaction will be closed using this money. The cost of this transactional funding should be about 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.

You end up making more money than borrowing from a hard money lender, because your fees are much less. This is how this transaction will work:

$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 buy houses cash, you get them at a lower price than regular buyers.

You can use this strategy to buy short sale properties and flip them to other investors. Most private money investors would love to lend money this way.

Simply said, the private money buys property from the seller and you sell it the same day to your buyer and walk away with the difference.

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.