Buying and Selling REO With Transactional Funding

[Richard Herrera]

Hello All,

I'm starting to hit the REO market and would like to know how some of you are accomplishing this. First I will be using transactional funding and will quickly resell it to an end buyer I'm looking to hold the property for no more then 30 days to do the flip. What are the steps you normally do from the start to finish. How do you find an end buyer,

Thank you

[Jeff S.]

Traditionally Richard, transactional loans involve a simultaneous close. That is, you buy the property from the seller with borrowed money from your lender and immediately sell it to your buyer through escrow, who has received his funds and can close the same day by paying off your loan.

In principal, you actually own the house for just a few minutes. Escrow is instructed not to close on your purchase unless they have the funds in hand from your buyer. Thus, it’s a relatively low risk transaction. At worst, your buyer doesn’t get the funds and everyone simply walks away. On the other hand, you’re proposing what is probably the riskiest of all transactions.

In this case, you’ll borrow money to purchase a house without assurance you can close and you’ve promised to pay off your loan in 30 days. Either you're going to get stuck with the house and have to make payments, or your lender will.

We’re experiencing that most flips seem to take at least two buyers to the tune of around 6 weeks each. The first usually falls through. Even the smoothest deals with the most qualified buyers will take at least 30 days in this market.

I don't mean to burst your bubble, but If I were you, I’d seriously reconsider this strategy.