Real Estate Investing Strategies: How to Locate Private Money to Flip Short Sales

Monday, January 19, 2009

How to Locate Private Money to Flip Short Sales

In different areas of the country, real estate investors are having difficulty getting financing for their deals. Some hard money lenders have gone out of business and the funds that were easily available are no longer around. As a matter of fact the hard money lenders who actually still have cash available now require a down payment to use their private money. You have to put up more of your money plus credit and still have to pay up to fourteen percent plus other holding costs to flip properties. This process has stopped a lot of investors from doing deals.

There’s a great strategy out there that some investors have adopted because of the shortage of private money. They have found companies on the web that allow them to use private money to do double closings. The strategy I’m referring to is using private money to flip short sales and bank reo properties. Even though the market is suffering there are still “A” credit buyers out there that are looking for deals. They are intelligent to know that it’s a buyers market and so they are picking up properties with equity that’s twenty percent or more below market value.

By using private money you can pick up these properties cheaper than the average buyer because you’re using cash. So even though your end buyer with conventional financing may be able to pick up an property that’s twenty percent below the market you can come in and get it for about 40, 50 and in some areas 60 percent below market value as a cash buyer. You can then flip that property to your end buyer in a double closing transaction allowing you to make 10 to 50% profit spreads with Short Sales and REO’s. The double close is structured as an “A” to “B” then “C” to “D” transaction. The bank is the “A” seller; you the investor are the “B” buyer. This covers your transaction buying the property from the bank. The “C” to “D” process now makes you the investor “C” seller and your end buyer purchasing the property from you becomes “D”. This deal is structured so that if your end buyers financing doesn’t come through you are not stuck with the property. This protects you and the private money lender.

When you search the internet look for companies that provide private money with no up front costs. Most of these companies are charging up to four percent before they fund you the private money for deals. This can become very costly and eat into your profits. Things to look for are companies that allow you to use their private money and charge you about one percent plus a usual $300 admin fee with closing costs that is taken out of your profits at closing. This will allow you to work multiple deals at once.

Once you’ve found your private money funding source you can now start making deals to flip short sales. Here is an example of how a short sale flip with private money using the double closing strategy will work:

$100,000 Retail Value of Property
$50,000 Bank Accepts Your Short Sale Offer
$80,000 You Resale to End Buyer at this Price
$30,000 Your Profit at Closing
$1500 Your Cost of Funds (2% Plus $500)


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2 comments:

Evelyn said...

Hi I am Evelyn Jean,

One of the most risk-free strategies in real estate investment is to lower the price of the real estate property just as they do in the wholesale business. If this is followed then it is easier to deal with a motivated seller or buyer.


Please visit: www.baltimorereia.com to know more

Gerardo100 said...

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