by Tod Snodgrass
It takes money to make money. --Sol Luckman
To be a successful Real Estate Investor (REIer) takes capital. It does not necessarily have to be YOUR money, but before you can successfully pull off a deal, chances are SOMEONE’s funds are going to have to be brought to the table. Plan ahead. Line up funds before you need them. You can’t have too many money resources. Ask your realtor and mortgage broker for advice about where to secure real estate investment funds; they are usually experienced pros who can often steer you towards conventional financial resources. If the deal is right, there are many different alternative resources available for REI funding as well. It might require that you get very creative with how the deals are put together.
Potential alternative financing sources include:
A. Hard Money Loans (HMLs): These are typically asset-based and of relatively short duration…6-24 months; used principally by experienced rehabbers to buy a rundown property, fix it up and flip it--hopefully for a profit. However, if you are a REI newbie, HML may be problematic. For example:
1. You usually need to bring “skin in the game” money to the table, i.e. 10%-25% of the purchase price. A potential barrier for those who lack cold hard cash, to be sure.
2. Most Hard Money Lenders do not like to make loans to those who have never done a rehab before. They like it better if you have already done a few successful flips before undertaking any deals with them.
B. Construction loan, assuming your profit projections hold up on paper, and you already own the land on which the construction will take place.
C. Cross-collateralized loan: Use the equity from one property you own to secure a loan for a second property you wish to acquire.
D. Hypothecate a (real estate related or other) note you own. Basically, you take out a loan by pledging the note, thereby using it as collateral to secure the loan.
E. Equity investors. The advantage here is that you do not have to make monthly payments because there is no loan. When the deal is done, some sort of profit split is made to compensate the investor(s).
F. Joint venture: you bring the deal, they bring the money, split the profits at the end. This is a variation on an equity-type investment. For example, you may have land you own, or you are a rehabber with great skills sets but lack the cash to pull it off successfully.
G. Seller financing. The truth is not every seller needs a 100% cash out from the sale of the property they are selling to you. In fact, due to tax issues or the desire for monthly income, they may actually be open to carrying back some paper. This has the potential to be a win-win for both you and them.
H. 100% funding. This is available to wholesalers and rehabbers if the LTV (loan to value) to FMV (fair market value) ratio is low enough (60% or less). See end of this article for more on this type of funding.
I. Traditional Transactional Funding (TTF). Often referred to as a (same day) back-to-back or double (escrow) close. You first must have exit-strategy money (cash buyer or lender) lined up and ready to go. TTFs can be expensive to pull off, but worth it if you have sufficient profit built into the deal.
There are three parties involved: Seller A, Wholesaler B, Investor C, and there are two separate escrow closings: A to B, B to C. The normal sequence of events is as follows for a TFF:
1. C puts their money into the BC escrow;
2. B puts their money into the AB escrow;
3. AB escrow closes. B now (temporarily) owns the property, say for a few hours.
4. BC escrow closes. C now owns the property, and is provided with a Grant Deed.
The problem with TFFs is that many if not most title companies no longer allow traditional same-day double closes. That brings us to an alternative to TFFs, a “SMTF”.
J. Slow Motion Transactional Funding (SMTF). Same basic structure as a TTF, but with a twist: Instead of a same day close (which may not be available) with a SMTF you have up to one month to accomplish both closes. The normal sequence of events is as follows for a SMTF:
1. C puts their money into the BC escrow;
2. B puts their money into the AB escrow;
3. AB escrow closes. B now (temporarily) owns the property, i.e. they have possession of a Grant Deed for up to 30 days.
4. BC escrow closes (within 30 days). C now owns the property, and is provided with a Grant Deed.
What We Do: Quickly provide short-term, first position, private capital funding, to real estate investors for flips, fix/flips, transactional funding, and more. Contact info: Tod Snodgrass, emdfunding1@gmail.com,
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