A List Of Transactional Funders For Real Estate Wholesalers.

I have uploaded this list of Transactional Funders via Google Drive. You should be able to read it right from the drive. Let us know if you have a problem downloading it, if you wish. If you don’t have Excel, and want to view it offline, without Google Drive/Dox, I suggest looking for a freeware version of the software, such as Libre Office, which is what I made this in. Other Free/Open Sources include Open Office, or some other choices for you.

Based on their data, which I’ve placed in this sheet, Lima One Capital is probably your best option. They have no extra fees (processing or wire) and have a 1.75% interest.

Straight Line has a lower interest rate, but don’t work in all states.

ICF doesn’t work NY or GA, so if you’ve deals there, you won’t be able to use them.

There are 3 that are nationwide. However, they charge processing or wire fees. You may find that one of these others are better suited to you, and you may develop a good rapport. Some companies, when you do a certain number of deals with them, or in bulk, offer better terms; it never hurts to ask!

These are not the only Transactional Funders; just the ones I’ve come across at the time of this writing. Most, and possibly all of these funders will cover the closing costs, so when you present your cash offer on your deals, which you’re doing as someone with a transactional funder, you can also tell them you’ll cover closing costs. However, issues like back taxes, liens, etc. may not be covered by transactional funding. It will be something that you’ll need your end buyer to be aware of.

Terms For Investing And What They Mean

In the last post, we looked at some of the ways to invest in real estate. This included auctions, REOs, subject to, and Lease Options. Here, we’ll go over some more terms, what they mean, and as applicable, elaborate on them.

The ARV, Comps, and 70% Rule.

When you get involved in REI for any length of time, especially with SFH, you’ll come across “The 70% Rule.” What this means is that you find the ARV (After Repair Value or Approximate Retail Value), sometimes called the Fair Market Value of the subject house. Boiled down, the ARV is what the average cost of similar sold houses in the area, and are a guide for what your subject house may sell for. Remember, REI is an art, not a science. “A house is only worth what someone will pay for it.”

How do you find similar homes? These are your comps. Generally, you want 3 – 6 homes for your comps. Two, generally, aren’t enough. Anything more than 6 is generally going over board. These are only houses that have sold; houses that are still for sale are not accurate, as their final sold price may be vastly different. The guidelines are as follows:

• The houses should have the same number of bedrooms and bathrooms. Often, you may not have houses that match the same number of beds and that. In these cases, the first number you adjust is the bathrooms, going no more than 1 more, or 1 less. After you’ve gone through your comps, and if you still lack enough comps, you adjust the number of bedrooms, 1 up, or 1 down. Again, this is a guide.
• It is preferred to find the comps that are those that have been sold within the last 6 months. In bigger cities, like NYC or LA, this shouldn’t be a problem. However, in say, Plummer, ID, this may not work. Then, you may go back 9 months. While you may go back 12 months, the comps aren’t considered as accurate, because “the market changes.” But, if you’re in a smaller market, it may still hold.
• The next guide is that of a property that is no more than 1 mile from your subject. Property values can change within a few miles, and sometimes, even in the same block. While some prefer 0.5 miles, you may find yourself having to go out 1 mile. In other cases, you may find yourself having to go out 1.5, or even 2. Similar to the 6 months time frame, the further out you must go, the “less accurate” your comps can be.

Another option is a CMA, or Comparative Market Analysis. This is done by a real estate agent. It can provide more accurate details than the ARV, and can include a BPO, or broker price opinion.

All of this helps you determine your MOA, or Maximum Offer Amount. Once you have the ARV, this isn’t what you offer the seller, or else you won’t be able to turn a profit. The 70% rule is that the most you’ll offer someone is 70% of the ARV. For simple math:

• You have a subject property, and are using 3 comps.
• Each of the 3 comps sold for $100,000.
• Your ARV is $1000,000 (3 homes X the sold price of $100,000 = $300,000. Divide that by your number of comps, and you have $100,000).
• 70% of your ARV is $70,000. That is the most you offer, but that’s mainly if you’re flipping. You also need to take away your estimated repair costs. Then, if you’re wholesaling, you need to subtract your wholesale fee: anywhere from $2K – $10K. You can do more than $10K, but at that point, you don’t want to assign the contract (some say not above $5K). Instead Transactional Funding is what you’ll most likely want to use.
• Often, it’s suggested that you offer be 65% of the ARV, or even 60% of the ARV. The deeper the discount, the better your options.

How To Find Your Comps.

There are a number of sites that you can use to find your comps. Some are easier to use then others. There’s Zillow, Trulia, Realtor, Redfin, and others. When you enter your subject property into one of these site’s search box, in many of them, you may see the site’s estimate, such as Zestimate. However, these aren’t considered accurate, and if you present the Zestimate to an investor, they’ll reject the deal, then and there, and probably won’t look at any future deals. Use these sites to find comps, as outlined above.

One option others may tout are sites and banks “Value Calculators.” Some include RE/MAX,Bank Of America, or Chase Manhattan, which show prices of homes in the neighborhoods, their BR/BA (bed/bath), etc. But just like the Zestimate, these can also be off the mark. Thus, the art of running comps, to try to get a more accurate value of the home.

A few sites include Real Estate ABC, Find Comps Now, or REI Kit. And as you read above, even the ARV is an art, not a science. For one thing, not all of the sold comps can be listed, in which case you need access to the MLS, which isn’t free. If you’re not a real estate agent, broker, assistant, or like, you may not have access to it. Some sites do provide access to the local MLS, but not all do. So, while a CMA, with full access to the MLS, and all properties sold, will tend to be more accurate, until or unless you develop that sort of close relationship with someone who can provide access to the MLS, your options are the creative art of the ARV from the above sites, and to remember to estimate on the side of caution. Estimate higher repairs, for example.

In the next post of this series, we’ll outline some transactional funders.

Methods To Buy Real Estate

Some of The Methods To Buy Real Estate

If you missed the previous post, we discussed Getting Started. We touched on shows on HGTV, single family, multifamily, and a few other topics. Now, onto some methods.

There are many methods to buy real estate. However, not all methods work for the investor. For example, buying a home with traditional bank financing usually isn’t recommended, because for one, you’re putting your personal credit on the line, and it’s generally advisable to use other methods. This blog post will cover some of the ways and places to buy Real Estate. Note that links to external sites are not endorsements. Rather, they are just one site with information on the subject matter, provided for educational usage. We do not suggest following their techniques, unless you know what you’re doing, or have someone to help walk you through it. Note that we will focus directly on buying real estate, and not methods such as real estate investment trusts.

Buying Real Estate At Auction.

Should one buy real estate at auction? The initial appeal of looking at real estate at auctions like Auction.com, and others, are that they’re cheap. BUT, you generally must put up deposit money, which can be a few hundred, or thousand, to bid. If you’re just getting started, this may not be the best method to go. Depending on the site, some deposits may be refundable, and others may not. In addition, if you win, but don’t meet the reserve figure, then you don’t get the deal. Finally, remember that you’re competing against everyone else who is at the auction, or looking at the auction site. They people who are auctioning the property are looking for the highest bid. In the case of bank auctions, especially, they’re going to announce it on every platform available to them, to increase the chances for a high bid. Finally, it can be very difficult, if you’re not the end buyer. For the same reason that you can’t assign the contract of an REO, you can’t assign a won auction…indeed, if you read the above, you’ll possibly need a few thousand, just to bid. Then, you’ll need to be able to close at the auction, or within a set time, sometimes within 24 hours. You can use transaction funding (there will be a post about this, later) to buy that, but you’ll need to have your end buyer in place. Of course, if you have your end buyer lined up, or make some sort of arrangement with them, you can always buy the house in the name of an LLC, with yourself as “manager.” Then, if you win the house, you “assign” your ownership in the LLC to the end buyer, who comes to closing as the “owner” of the LLC. Make sure you follow your jurisdictions regulations for buying and selling a business. For more about auctions, read this article on Investopedia.

Buying REO, AKA, Real Estate Owned: Houses Owned By

The Bank.

Generally, after the auction, a house that doesn’t sell at the auction becomes REO. The bank owns it. Bigger, national banks—Bank of America, Chase Manhattan, Wells Fargo, etc.–have their own departments that handle these properties, and are placed with a realtor to sell. Often, they will try to sell the house at market value, to make up for their losses. These can sometimes be good deals, but just like there are a lot of people trying to get a good deal at an auction, there are a lot of people looking to buy REO. You’ll need to run the numbers, to see if it’s a deal. If it’s close to retail or market value, you won’t be able to wholesale it. You may be able to flip it, or buy it for a rental, of course. However, as mentioned in the auction section, wholesaling it is another matter. Also, as mentioned, you can use transactional funding, or “assign your LLC.”

Smaller, local banks, credit unions, or regional banks may or may not have the same resources for dealing with REO. Likewise, since they’re smaller, they may not have as many, or any, REO to buy. These can also be difficult, because unless you know who to talk to, and how, you’ll beat your head against a wall of gate keepers. Even if you reach out to “disposal managers,” finding the right people can be difficult for the new investor. Here is a little bit more on REOs. One other article I’ll point you to, regarding REOs, is about “shadow inventory.”

Buying Real Estate Subject To.

In short, Subject To means that you are agreeing to buy a house, subject to the existing mortgage(s), along with any taxes or other encumbrances. This should not be confused with assuming the loan, which is the more “formal version.” The owner deeds the property to you, and you take over making the payments to the lending institution. For more on this, and some tips for due diligence, read this article.

The Lease Option.

There are a lot more methods, but the last I’ll touch upon is the Lease Option. Unlike a lot of other methods of REI, the Lease Option tends to focus on the “pretty homes,” or those that may need cosmetics, small updates, and “light repairs.” The Lease Option can be used in conjunction with, or independent of, rent to owns. They usually do involve seller financing of some type.

Have you ever leased a car? If you have, then you already know what a lease option is. When you lease a car, you do so with the option to buy it at the end of the lease period. If you don’t wish to buy it, you can give it back and buy or lease another car. Substitute house for car and you’ve got the idea!

A lease option is exactly what it says it is. It means leasing the house with the option to buy the house within a certain time frame at a predetermined price. This process may also be referred to as lease purchase or rent-to-own. Many people think that this procedure entails taking a security deposit plus the first month’s rent, putting the tenant in the property and waiting for the tenant to call at some point and say: I’d like to buy the house now. That is a lease with the hope that the tenant will buy! How we lease option a home is not even in the same universe. All the conditions of both the sale and lease will be spelled out in advance and a specific time line will be adhered to.

Why Do Lease Options work?

Lease options work because there is a huge market for them.

This market is made up of buyers who have some sort of problem that will not allow them to qualify for a mortgage. The problem could be bad credit or lack of the full down payment. A lease option affords these people the opportunity to purchase a home that they otherwise could not acquire.

On the other side of the coin, a lease option helps a homeowner to sell a home that for whatever reason (job transfer, divorce, retirement, location of house, etc.) could not get sold quickly enough or in a conventional manner.

The lease option process is not very complicated. Lease options work because both parties need each other. I find these people and put them together.

What Are the Lease Option Benefits to Tenant/Buyers?

Price locked in up front.
Low down payment.
No loan qualification needed.
Option consideration.
Time to obtain good financing.
No taxes to pay.
Time to repair credit.
Time to save additional down payment.
Time to check out the house and neighborhood.
And some others.

What Are the Lease Option Benefits to Landlord/Sellers?

Huge market of buyers all the time.
No management headaches.
No realtor commissions.
Higher quality of tenant.
Seller [may] retain tax shelter [check with accountant for specifics].

In the next post, we’ll get into some terms, and what you’ll need to learn, regarding wholesaling, and investing SFH.

Getting Started In Real Estate Investing

You want to get started in real estate investing?

That’s great. It’s a nice field to get into. The question is why? Did you see a show on HGTV? Did you see the thousands of dollars they made…realizing of course, that it can take 2 – 6 months–and sometimes even longer!–from the time you close on the deal, until it’s ready to be sold. Then, you have the time it takes for a property to sell. You’re competing against EVERY OTHER HOUSE ON THE MARKET! While, in theory, it can happen within 90 days, once it’s ready, it’s not uncommon for houses to sit for 6 – 12 months, or longer. When you decide that you want to get into real estate investing, the most important things are not only what your end goal is, but how are you going to actually get to that end goal?

These blog posts will take you through some of the many methods of real estate investing, and will give you starting points. There are many aspects of REI (Real Estate Investing). The main types of REI are SFH (Single Family Homes), MFH (Multifamily Homes, like apartment complexes and mobile home parks), Commercial, and lots/land. There are more, and as I mentioned, REI has a lot of areas. For the purpose of this series, and for anyone who wants to learn with us and JV, our focus will be on SFH. This is mainly about the numbers. Could we focus on, say for example, land? Yes. But, when you look at it, nationwide, do you think there are more people who have homes to buy and sell, or lots/land?

I also want to provide some elaboration, regarding single family homes. For the most part, it’s just what you would think: a simple home, with a one or more bedrooms, bathrooms, a kitchen, and maybe some other rooms. But did you know that often, in investing, and even regarding financials, “SFH” is considered “4 units or less.” This means it can include duplexes, triplexs, and even quadplexes (sometimes called four-plexes). However, once it goes to five units—by the “powers that be”–5 seems to be the “magic number” for it to be multifamily.

Investing in SFH

Other properties that can be considered SFH include town homes, row houses, condos, and mobile homes. It should be noted that for the most part, few investors invest in mobile homes. Let me elaborate. First, if it’s in a +55 community, that is a very specific niche. When you buy, you want to buy with the end goal in mind. With everything else, an investor wants as many people as possible to look at buying their property. With this ages restriction, it limits your end buyer, and puts an unneeded risk for most investors. Then, there is the very fact that it’s in a community. For the most part, unless you develop a great rapport with the owner, or manager, as the case warrants, you’ll need to make sure it’s ok to rent your property inside of their community. There are people that do this, and there are a lot who don’t. You need to make sure all the rules you may give your tenant(s) align with the community. Most don’t want to do this, simply because they don’t understand, or want to bother to learn, all the nuances. Thus, most investors won’t do mobile homes. Also, if for some reason, there’s complications, and they have to move the mobile home, and it’s not a simple rv/trailer, it can cost anywhere from $2k – $10k, to move the mobile to a new site. Thus, it becomes another expense that investors don’t want to loose sleep and money over. The exception, of course, is if the mobile home is not part of a park. If the owner also owns the land/lot that it sits on, and the owner is looking to sell the whole thing, then there tends to be more interest in it, since the end investor has more control of the deal. Many of the above reasons can also be why some, or most, investors don’t want or like to invest in condos, or in HOAs. HOAs aren’t deal killers, but not something all investors will deal with.

In the next post, we’ll look at some of the various REI methods. Stay tuned!