West Palm Beach, Florida is a great place for real estate investors to find profitable deals. It is important to understand the unique nature of Transactional Funding West Palm Beach and Palm Beach County in general. Most real estate investors who do wholesaling in West Palm Beach use transactional funding to avoid any legal issues in the first part of their transactions.
Transactional funding is the process where a “funder” allows the use of his money for a real estate closing for the initial “leg” of an A – B and B – C transaction. The letter designations are used for the parties to the transaction, the seller (“A”), the investor (“B”) and the end-buyer (“C”).
This process is often referred to as a double closing and is totally legal in the State of Florida when done properly. The misconception of this funding process being illegal has been perpetrated by national lenders and a few misinformed Realtors, closing agents and attorneys.
These well-meaning but misinformed individuals perceive double closings as taking advantage of the sellers’ lenders. After all, in the lenders’ minds, if an investor can close on a property and hours later resell it for a profit; something must be wrong because the seller’s lender should have received this profit spread.
The situation where an investor and closing agent can get into an illegal situation is when the end-buyer’s (“C”) money is used to fund the investor’s original purchase, or the A – B leg. What is illegal about this part of the double closing is that the end-buyer is intentionally not told his money is being used to fund the A – B leg.
While most closing agents shy away from using the end-buyer’s money at all, some have correctly requested that the investor get the original seller and the end-buyer to sign a Disclosure Statement that allows the investor to use the end-buyer’s money to close the A – B leg. However, this “joint cooperation” often results in either the original seller or the end-buyer walking away from the transaction.
The more viable option for an investor who doesn’t have the money to purchase the property with his own money is to use transactional funding for the A – B leg. Some investors will try to “assign their contracts” to the end-buyer and in rare cases this will work and no funding from the investor will be needed. However, this cannot be done with short sales, REOs (bank-owned properties) and where the net profit to the investor is so large that the seller or buyer may not close.
West Palm Beach is a unique area in many ways for South Florida real estate investors. The city and county of Palm Beach rank relatively high in short sales and REO properties at seemingly great prices compared to its neighboring cities and counties to the south – Broward and Miami-Dade Counties. However, this can be misleading since the city of West Palm Beach and Palm Beach County are less populated than their “sister counties”.
Because of the less transient nature of the population in West Palm Beach, properties sell slower if they are listed or offered at Full Market Value (FMV) and rental properties only bring about 60% of the corresponding rents as in the neighboring cities in Broward and Miami-Dade Counties. Once investors grasp these important features of West Palm Beach properties, they can adjust their offering prices accordingly. Also using transactional funding West Palm Beach makes the deals easier to fund.
In summary, real estate investors should use transactional funding whenever necessary to legally do double closings in any of the following cities – West Palm Beach, Palm Beach, Wellington, Lake Worth, Boca Raton, Boynton Beach and Delray Beach to mention a few cities in Palm Beach County.
To your limitless success,