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Hello All,
Just wanted to get some feedback on something relatively new for us. Our business which primarily buys and holds/rents nice houses also does some private lending. And only if the loan is secured by a house we would like to own and hold. Recently we have been asked if we would do transactional lending and just wanted to ask about any pitfalls or risks we should be aware of with that.
The jist of it seems straightforward, but I have no experience with the mechanics. While there is a buy and sell in the same day and our funds are used for the buy how can we ensure we protect our funds until all the pieces of the transaction are completed?
I will reach out to our preferred title agents and attorneys as well but figured this would be a great place to get some real feedback from real life experience.
Thanks as always!
Thanks for the response Don, here are some details.
The Investor borrower has a contract to buy the REO house, 3/1.5 block for 75k and is flipping it to another buyer for 82k. Basically a wholesale deal, but since they are buying from a bank they need to double close rather than assign the contract.They want the transactional funding for the initial purchase. They are looking for a loan for 70k just for a day or 2 for the double closing.
The house value is 150k ARV, needs 25k of rehab work.At first glance the house as collateral seems acceptable.
Let me know your thoughts.
Thanks!
Joli,
Transactional Funding is a good way to build a nest egg with IRA money as you can grow
it tax free if it is a Roth IRA. I have a standing account in escrow at a title company that I funded
for a very active wholesaler and all the closings are done at that title company under a JV
agreement among the three parties(lender, wholesaler, closer).
Most TF’s are straight loans for points and interest whereby the borrower pays back more
than the proceeds of the loan. Each time a new loan is originated for the middleman, if it is recorded,
recording fees and “doc” stamps are incurred. Also, you have to be careful that this doesn’t become
your main business as the IRS and a few other bureaucracies will require more disclosure and
documentation of each transaction. Anyway, it’s a good stream of income to compliment the others.MAC
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