We’ve discussed types of mortgage loans, in part two of this series we’ll focus on real estate loans used for wholesale deals (yes you sometimes must use loans to close a wholesale deal), fix and flips and multi-unit properties financing. We will look at four types of financing:
Transactional Funding also known as Bridge Funding: This is very short-term funding that facilitates what is known as “back-to-back” closings. Back-to-Back transactions involve three parties,
-
Seller
-
investor (also known as the wholesaler)
-
end buyer.
“A” sells to “B” (this closing uses transactional funding) and then “B” sells to “C” in a very brief time frame (hours to 1-2 days). This money costs anywhere between 1.75% (which is what our transactional partners charge) to 3%. On a side note, you can also become the funder. It’s a wonderful way to make a quick return on cash with very low risk.
Hard Money Loans: These are non-owner occupied short term real estate loans (typically a year or less). The loan is based off the value of the property. Typically, a loan will run 65-75% of the “future value” of the property, meaning what the property will be worth once it’s fixed up. If you are buying a property whose future value is $100,000, and the lender will give 65% of the future value, the loan will be $65,000.
The next question is, what do hard money lenders charge? Interest rates can vary from 9-13%, now they also charge anywhere from 2-4 points (a point is a percentage of the loan), and other fees such as the appraisal. This is not cheap money – but its money that will get the deal done. One of the most important things is that you figure in the cost of the loan into the deal.
Crowdfunding: Crowdfunding allows pools of investors to “pool” their money together to invest in Real Estate. This is done by a real estate funding platform which allows for easier and faster funding of transactions. It also uses technology to find investors. Crowdfunding has been geared toward “accredited investors” but under the JOBS Act investors no longer must meet the criteria as an accredited investor.
Commercial Loans: These loans are typically made on the merit of the property. This doesn’t mean that a lender won’t require a personal guarantee from buyer(s). If the bank doesn’t require a personal guarantee the loan is called a non-recourse loan. These loans are also structured differently for repayment. A residential loan is typically amortized over 30 years with repayment also being over 30 years. Whereas a commercial loan is amortized over a similar period but repayment is over a shorter time frame, five years (or less) to 20 years with a balloon payment due at the end of the loan. Refinancing is very common. It makes sense because the asset should continue to increase the ability to create additional cash flow if managed correctly.
There is a saying in Real Estate, if the deal is good the money will follow. As you can see, there are many options for finding the right financing.
This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms
Editors’ Picks
EUR/USD regains traction, recovers above 1.0700
EUR/USD regained its traction and turned positive on the day above 1.0700 in the American session. The US Dollar struggles to preserve its strength after the data from the US showed that the economy grew at a softer pace than expected in Q1.
GBP/USD returns to 1.2500 area in volatile session
GBP/USD reversed its direction and recovered to 1.2500 after falling to the 1.2450 area earlier in the day. Although markets remain risk-averse, the US Dollar struggles to find demand following the disappointing GDP data.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
After the US close, it’s the Tokyo CPI
After the US close, it’s the Tokyo CPI, a reliable indicator of the national number and then the BoJ policy announcement. Tokyo CPI ex food and energy in Japan was a rise to 2.90% in March from 2.50%.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.