Dual Funding in Real Estate Investing – the Ideal “Tool” to Use to get More Wholesale Deals Completed
Dual funding in real estate investing is a recent invention of hard money lenders and lenders who only do transactional funding. Historically hard money lenders seldom did same-day transactional funding. Transactional funders seldom did hard money loans. In recent years both types of lenders have come together to combine their efforts to make both loans as seamless as possible.
An investor who doesn’t have enough money to purchase a property and resell it to another buyer cannot usually get a hard money loan for a one to three day duration. The cost of hard money would be unreasonable for such a short time. It would also substantially reduce the profit to the investor. Hard money lenders want loans where they can charge points (interest on the front of the loan), fees and monthly interest.
Most hard money lenders have pre-payment penalties of three months or more if you pay off your loan early. So if you borrow the money for two weeks it could cost you the original closing points and at least 90 days of additional interest. Hard money lenders take great care in analyzing the property and the individual to whom they are loaning money. They are known as “predatory” lenders in the industry. They will not hesitate to foreclose and take a property back if the borrower isn’t paying timely.
Transactional funders are satisfied to charge substantially less in fees and points. There should never be interest payments. The reason is simple. The funding of the needed cash to close should only be used for a few days at the most, not for weeks or months. Sometimes an investor will get a property under contract that is a great deal and he finds a buyer quickly. The buyer must have cash to close or have a hard money lender willing to give him cash to close.
The problem comes when the investor’s buyer must get a hard money loan. It is often with very little time before the closing of the B – C leg of the transaction. Hunting for a hard money lender is easy online. However, getting the borrower and the property qualified can take days or weeks. At this critical “moment in time” everything rests with the hard money lender bringing his money to closing. If for any reason he doesn’t, the entire deal will be lost. The investor, original seller, closing agent, and listing agent won’t make money and the end-buyer will not get the property.
The ideal situation is where the transactional funder is able to also refer or bring a hard money loan to the B – C closing. In this case, the entire process has a much greater chance of closing. This “referral” process is called “Dual Funding” even though it is done by two different lenders. These lenders are working in unison.
If the end-buyer has a hard money lender then the transactional funder will close. Then no referral to a hard money lender is needed. Our experience is that about 25% to 30% of the time the hard money lender does not close timely if at all. This can be for a myriad of reasons including the borrower (“C”) buyer not cooperating or the closing agent not cooperating with the lender’s requests for documents.
If you haven’t found out already finding a deal to wholesale is 1/3 of the battle. Getting a buyer is another third and often the toughest part. The final third is finding a lender for your end-buyer. Knowing this will allow you to be prepared well in advance of closing and even help you find end-buyers.
Another huge benefit of having transactional and dual funding in place is so you can advertise your wholesale deals as having “80% funding in place for qualified buyers.” This quote added to the marketing information of your wholesale deals will attract buyers who otherwise would have believed they had to have all cash to close!
We offer both Dual Funding and Transactional Funding so ask us ahead of time about any procedural questions you have.
To your limitless success,