While most consumers are familiar with the traditional mortgages associated with home ownership, commercial property and other building investments can be a little more complicated. On the surface, these transactions can be a bit more involved with additional moving pieces depending on the price and number of investors related to a specific property. However, commercial lending associated with securing money for almost every type of property that isn’t a family home does not have to be scary and can be accomplished by anyone.
For those deals in which an investor or group has found a profitable piece of real estate but needs immediate funds to close, hard money lending can provide the needed financial backing in order to complete a deal and often in a much shorter time period than that associated with more traditional banks and other lending services.
Transactional funding is lending provided for a short term that is necessary to bring a real estate deal to fruition. This type of monetary supply is often associated with individuals who wholesale properties but can also be used in a variety of other necessary circumstances, including: auctions, short sales, and fix to flip scenarios – individuals or groups who buy a particular property with a plan in mind. They then complete or oversee the necessary improvements and potential remodeling projects before then selling the piece of real estate for (hopefully) a significant profit.
Most of these types of uses for transactional funding involve at least three or potentially more parties, although they may be teamed into a similar group, currently associated with a property to complete the deal. Following is an example of how this lending source can offer assistance in each of the previously mentioned circumstances accompanied by a brief explanation of each type of deal.
Rapidly buying and selling properties is the wholesaling concept involved with real estate. Typically, one investor purchases the property and then almost immediately sells it again to another investor, buyer, or potential renter. Often these pieces of real estate can be bank owned initially and since they require two separate transactions, initial buyers need to have money to cover their separate closings.
For example, Owner 1 needs to sell to Investor 2, who will in turn then complete the process by selling to Investor or Buyer 3. Investor 2 needs money to close the initial deal in an effort to make a significant profit when the final transaction is complete. If they have the cash available then they proceed but in most cases do not and this is precisely where transactional funding is used in real estate wholesaling, fitting into the process.
Investor 2 is issued a short term loan in order to bring all required funds necessary for completion of the 1-2 deal, before completing the 2-3 portion and paying off the loan with their profits.
Every loan is unique and depending on your relationship with a lender, the property in question and personal cash or assets, transactional funds may be issued for auction purposes. In this scenario, Investor 1 receives the short term loan from Company 2 for placing wagers on a property. If Investor 1 wins the auction then Company 2 becomes the legal owner and Investor 1 completes upgrades (if flipping) or immediately sells to Buyer 3, who may not have had access to funding for bids or is unaware of the necessary process.
A short sale is when the selling parties lender has agreed to a discounted payoff in order to relinquish control over the mortgage. Every mortgage can be discounted regardless of the current conditions associated with the building, meaning the quality of the property does not have to be an issue, only the current financing as most short sale properties are nearing bankruptcy or foreclosure.
However, most real estate owned by the bank will not succumb to contract assignment. For this reason, the “middle man” must again front the money for an initial closing in order to obtain the property before completing the entire process with a sale to an additional investor, renter, or buyer.
Similar to the wholesaling scenario, transactional funds can be issued to complete the closing of the initial transaction and then recouped in addition to other profits when sold immediately after the first closing.
FIX AND FLIP
Other loan types may be more suitable for this scenario but transaction funding can also be issued for those wishing to purchase a property, complete upgrades and then finalize a sale to someone else. However, the time between first purchasing the property and a final sale is extended due to the renovation and remodel time frame. While this can significantly increase the profit margin on real estate, the interest accrued during the time associated with a transactional fund that is typically only issued for 24-48 hours can prove costly.
All of the previously discussed scenarios require a third buyer to already be aligned prior to completion of the first sale in the process except the fix and flip transaction, although it significantly helps. Investors typically will not be issued any funds without guarantees of an immediate following transaction in an effort to return payment on borrowed monies over the short time frame, although the nature and market value of the real estate may provide some protection benefits.
If you find yourself in any of the above scenarios or have another need for hard money lending then come see the experts at COHI Capital Private Equity Lending who can help you determine and analyze your individual needs. After consulting, their quality experts can offer meaningful advice and help to set up a beneficial plan immediately for all involved parties. They will decide what type of loan will work best for you drawing on experience and benefits of finding successful funding needs for over a decade. A full detailed review of your situation can be completed in addition to resolution issues and monetary considerations. Request some additional information by contacting COHI today. Call 970-922-3277 or contact us for a decision. Often these are made the same day and can be addressed depending on client needs and schedule.