How to Use Investor Funds for Flipping Short Sales and REOs

How to Use Investor Funds for Flipping Short Sales and REOs

Banks and Lenders today require the buyer's own funds to pay for the home at closing when purchasing a short sale (less than mortgage) or REO (bank owned) property. This means you need cash to buy these types of homes. If you don't have your own cash, or don't want to tie up your money, an option is to use private investor funds.



Using investor funds is different from getting a "hard money" loan, which usually requires that you put up a substantial down payment and are charged higher fees. Many hard money lenders require you to have a minimum FICO score today, also.


With private money, the investor will use their own funds to partner the deal with you by putting up the money to buy the home and then, at a simultanious closing, exit the purchase loan. You will usually have to provide a 'proof of funds' letter to the bank, which the investor will provide, to show that you have access to the money to purchase the deal. You must have a buyer lined up that has been approved for financing and have a purchase agreement in place with the bank where the offer was placed before the deal can close.



So, you have a few choices when buying and flipping properties from banks. Use your own funds to purchase the property in your own name and then resell to your preapproved buyer. Qualify for a short term hard money loan at a high cost. Or, if you don't have access to your own money or hard money loans and don't want to run the risk of getting stuck with a home or tying up funds should you not be able to complete the sale on the 2nd transaction, then you can elect to use private investor's funds. Using their funds, you take no risk, you don't have to qualify for a hard money loan, and if the note sale doesn't close for any reason, you have no obligation in the transaction. A truly risk free flip using no credit or cash of your own. This strategy allows investors to flip short sales and REOs without using any of their own cash or obtaining a loan.



Your private investor is willing to put the money up for you in return for a fee. This may be a flat fee or a percentage of the amount borrowed. The investors I represent usually charge 1% of the amount borrowed to pay the bank + $300. Sometimes they may split the profit with you also.



Here is an example of how the scenario typically plays out:



Get a home under contract for 50% of value, which is easy in today's market.
FMV is $100,000.00, bank agrees to $50,000.00. Your preapproved buyer agrees to pay $90,000, and is happy to get a home at 10% under value. The investor gets 1% ($500) + $300 which is deducted from the profit at closing. You walk away with $40,000 - $800 (fee) for a total in cash of $32,000! There may be some closing cost deducted as well, but you can see what a tremendous opportunity this can be to earn unlimited amounts of money with NO cash, credit, or risk.

This strategy will open up opportunities for a huge number of investors and past investors who are locked out of taking advantage of this market due to stringent, conventional, investor lending policies.



There is a growing number of foreclosures, short sales, and REOs that will continue in the coming year. Everyone wants to buy them, but can't get the money to flip them. Now you are aware of at least one solution.


STEPS:
1. Find a home and place a contract on it so you can legally start looking for buyers. If you already have a home for sale, you can skip this step.
2. Start advertising and promoting for buyers at a discount of 10% off with ‘A’ credit. This is how you collect preapproved buyer lists.
3. Contact realtors to help locate a foreclosure short sale or REO. Or locate sellers in
preforeclosure.
4. Call bank with seller and request a short sale package.
5. Start showing the home to buyers.
6. Complete the package and include your offer at 50% of FMV on STD 1 or the Realtor’s contract.
Place your offer and negotiate in your name (or buying entity) with the bank. Keep earnest
money to a minimum, $10-$100 is usually acceptable.
7. Negotiate to no more than 55% of FMV. Otherwise go to the next property.
8. Once you have a preapproved buyer, let your investor buyer know you wish to use this preapproved end buyer with an REO or Short sale.
9. Funds are submitted, the home is purchased from the bank and a 2nd closing is completed simultaneuosly with the end buyer purchasing the home.
10. You are paid your share of the profits from the sale minus the 1% + $300 and any closing cost.

2009 will be a tremendous opportunity for real estate investors to amass a fortune by taking advantage of the foreclosure, short sale, and REO deals that will continue to be available. Don't miss this chance to create the dream life you deserve! Lack of money or credit doesn't have to stop you if you use private investor funds to finance your deals.

Until next time, when I'll share another creative real estate financing strategy.

Keep Dreaming,

Debbie Fishell
http://www.cashwithoutbanks.com/