Transactional Funding or Hard Money?

Question

Hello,

I'm recently gotten a property under contract at $80,000 with an ARV of $110,000, it needs very minimal repairs (paint, carpet, etc.).  Furthermore, I've found a (traditional) buyer who's highly interested in the property and agreed to enter contract with me at $95,000.

I am trying to figure out the best way to bridge the gap between the seller and my buyer.  I know that if the buyer was cash, I'd double close this one and be done.  However, being that the buyer is traditional, I don't think I'll be able to use "same-day" transactional funding.  Should I be persuing a hard-money option for the 30 days or so it will take my buyer to close?  Obviously I could just assign my PA with the seller, but then I'd have to disclose the assignment fee, which I'm not inclined to do in this case for obvious reasons.

Can somebody here offer some advice on what'd they'd do / have done in a situation like this?  I'm also in need of a lender who is in between the "same-day" and "hard-money" areas and would be willing to lend to bridge this gap, either local or national, if anybody has suggestions.

I'm in Albuquerque, New Mexico if that's relevant...

Thanks for any advice!! :)

Isaac

Isaac Ramos · Answer

@David TorresThanks for the response. Buyer isn't FHA in this case so anti-flipping shouldn't be a problem on that end. We'd definitely be interesting in chatting about your local funding sources, I'll send you a PM to get your phone #. We're looking to have this one at a conservative 73% LTV with a contract already in place and large buyer escrow. Logic says it shouldn't be too difficult, but if there any other suggestions, all's much appreciated.

IJR

Ted Akers · Answer

@Isaac Ramos,

Because your buyer is using conventional mortgage financing you want to check and verify what the lenders "title seasoning" requirements are.  Most require 90 days of title seasoning on a flip transaction, unless the buyer is putting 20% down payment.  This means the buyers lender will not fund them until you have been in title for 90 days.  Make sure the lender understands that this is a purchase and fast resale and try to get a response in writing from them because many underwriters will not know the specific requirements or that they can waive the requirement with a 20% down payment (they do not deal with flips frequently).   The fact that the property is being flipped frequently gets caught late in the game by the lender (frequently in a quality control audit just before going to documents) which can burn a lot of you valuable time available under your purchase contract.

S. J. Gardner · Answer

Stumbling upon this a year after the fact and I have questions. . .

@Isaac Ramos how did this deal ultimately turn out for you? And you speak here of a 10% Realtor commission and a $5K kickback? Are you, in fact, a Realtor? Sounds to me like wading through some very murky legal waters here. . .

Isaac Ramos · Answer

@Ted Akers @Duane Ortega

Thanks for your responses fellas, definitely quite helpful.  In case your interested we crafted a unique solution for this one, outline below.

We revised our contract with the Seller to $90k purchase with an extended timeframe (luckily they were open to this) to accommodate the traditional buyer.  Part of this agreement was also having them agree to a 10% realtor commission back to us.

We then had our buyer agree to cover the maximum amount of closing costs possible.  We also were able to convince our buyer to kick us back $5k right after closing as a "cleaning and touch up fee," and told them that we'd paint the place and replace all carpet for doing so.  This is not in writing but we have built solid rapport with the buyer and have no reason not to expect them to come through, and if not, we'll still make the majority of the profits on the comish.

Lesson learned here for me (us) was the following.  Always be totally transparent with both the buyer and seller, if you can find a way to meet everybody's goals (in this case, $80k to seller, and $95k to buyer with small renovation), then they're often willing to work with you to make things happen.

Thanks again for all the thoughtful responses.

Duane Ortega · Answer

Agree with Ted that is hard to find a conventional lender that will agree to quick flips.  There are some out there, but it's like a needle in a haystack.

Alternatively, you can find a cash buyer which will solve all your issues.

Richard Balsam · Answer

Couldn't you do a double close for this transaction? In this case - the buyer transfers the purchase amount to the title company or RE lawyer's (depending on your state) escrow account. At closing, title company (or attorney) uses these funds to fund your purchase. I know this is allowed in many of not all states. The only double closes I have done - involved purchasing the home for 30 minutes with our funds, while my buyers were in the waiting room, and then sold using owner finance - so my experience with outside money is limited. Call different companies to see who would work with this arrangement. Good luck.

David Torres · Answer

@Isaac Ramos this is a tough nut to crack.  As you are well aware, traditional financing is taking between 45 and up to 60 days currently.  Will the seller be willing to wait?

Another problem you may run in to is the "Flipping" rule if they are going to be FHA.  They may not be able to qualify for the financing for up to three months after the first transaction.

I have a few local sources that might fund this depending on the specifics.  When you get things locked up tighter, let me know.

Transactional Funding or Hard Money?

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