Short Funding and How it Works

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Short Funding and How it Works

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Posted: Jul 21, 2010 |Comments: 0

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Short Funding and How it Works

By: Eli Rozansky

About the Author

Eli Rozansky is a real estate investor turned private money lender.  He works for a Denver based short funding and transaction funding lender.  To view how short funding can benefit your transactions, visit www.shortfunding.com.

(ArticlesBase SC #2872340)

Article Source: http://www.articlesbase.com/ – Short Funding and How it Works

With the decline of the real estate market, there has been a dramtic increase in the amount of short sales and reo’s available for investors.  Before the downturn of the market, the investor (B party) could purchase a property from the seller (A party) using the back end buyer’s (C party) funds.  These back end funds could have been provided by a conventional loan, hard money loan, or the buyer could have been using cash.  However, because this practice was viewed as the commingling of funds, many companies prevented such practices from continuing and put a stop to these deals.  It was deemed unethical and possibly illegal to use one source of funds to finance two transactions.

From the removal of this funding source came the creation of short funding. As the real estate industry prevented the comingling of funds, private money lenders developed various “wet money” loan products to meet the rising demand by investors.  With the help of short funding, many people are able to receive financing for 100% of the loan to cost of the property and still maintain high profit margins due to the low cost of borrowing.

Many of the properties being purchased and then flipped are low risk properties.  This is because both transactions (A to B and B to C) are pre-contracted to be sold, with the back end transaction contingent upon the title transfering from A to B.  With these low risk transactions, the cost of the money remains low.  For these 24 hour loans, most borrowing costs range from flat fees to 5 percent of the loan.  However, should the back end deal falll through and the loan enter default, the percentages can often dramatically increase.

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Eli Rozansky -
About the Author:

Eli Rozansky is a real estate investor turned private money lender.  He works for a Denver based short funding and transaction funding lender.  To view how short funding can benefit your transactions, visit www.shortfunding.com.

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Source:  http://www.articlesbase.com/real-estate-articles/short-funding-and-how-it-works-2872340.html

Article Tags:
short funding, transactional funding, back to back closings, flips, wet money

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Find More Transactional Funding Articles

What is Transactional Funding and how it works?

Real estate for many people is still the ideal way of investing and earning profits. While there are no quick and easy ways to instantly and effortlessly get profit, there are ways for people to earn without having the enormous funds that are usually associated with purchasing homes, lots, and real estate in general. You may have heard of simultaneous closings in the real estate industry, and how it has helped generated income for people in the past. If you want to get into the activity, here are what you need to know about transactional funding and how it works.

Simultaneous closings

Buying and selling in the real estate industry is one of the general and most common ways of making a profit. Imagine that you have found an excellent piece of real estate property that you know would fetch an excellent price in the market, or which another investor or buyer is looking for. If you can own the property, the implications for you are good – you get the upper hand and will be able to sell the property to the other investors who need the lot. In the past, one of the easiest ways to make money out of these ideal situations is to undertake simultaneous closings, which are essentially back to back deals where you purchase property from seller X, which you will immediately sell again to buyer Y.

Quick flips and dry closings

Simultaneous closings allow you to earn without having to shell out your own money, since the lot you purchase from seller X is immediately paid for by the funds from buyer Y. This is otherwise called a quick flip, and is one of the most profitable in the industry in the past, since you are essentially making money the quick way. These transactions, which are called ‘dry closings,’ are one of the ways that the common man and woman has entered in the real estate playing field, without having to bear the brunt of the capital usually needed for real estate dealings – which could amount to as high as several million dollars, depending on the type of property that you are looking into.

New requirements

New requirements from the state and the federal officials have made simultaneous closings, quick flips, and dry closings more difficult. Today, these transactions are not illegal per se, but are undergoing much more scrutiny than it has faced in the past. What this means is that many title companies today no longer want to undertake the hassle of state and federal assessments and investigations, which can take quite some time and which may require more work out of the deal than is necessary. For more and more people, the question then is what to do when faced with the opportunity and the problem of simultaneous closings.

Transactional funding

This is exactly where transactional funding comes into play. Essentially, this is a type of service where investors like you are given the opportunity to use a type of loan called the bridge loan, that allows you to undertake the simultaneous closings safely and with the backing of money provided by the loan. The barrier of scrutinizing federal and state agents are removed since you are no longer conducting dry transactions or deals where money is transferred from the buyer to you, and from you to the seller. With transactional funding and the bridge loan under it, you are already conducting valid closings that give you the opportunity to make money out of opportunities in the form of simultaneous closings.

Funding source

With transactional funding programs, the investor such as you is essentially making use of the funds of the transactional funding company. You may use the transactional funding company’s name or your own company title, depending on the deals that you have chosen. There are fees, of course, for these types of services and using the loans, but since you do not actually put any money out on the table, the pros balance out the fees in the end.

The next time you are faced with an end buyer who is willing to purchase a specific type of property which you happen to know and have control of, go on and make the deal through the use of transactional funding programs.