Can You Use Private Money for Transactional Funding?
Most investors think of borrowing money as having to do it through a hard money lender to fund real estate investors. Hard money lenders are a major source of money for closing the purchase of properties, rehab money and even carrying the properties until they are sold to an end-buyer. This is the “normal” function of hard money lenders.
However, hard money lenders also loan transactional funding on a limited basis. Hard money lenders are often referred to as predatory lenders because they loan on the basis that they will have to take the property back and resell it themselves. Nowadays it is more difficult to get these hard money loans because so many of these loans went terribly bad when the market collapsed.
The other option to hard money loans is private real estate funding. So-called “Private Money” is what might be termed “safe money” that non-professional lenders loan to investors. This money from private real estate lenders usually comes from savings accounts, retirement plans and even mattress money.
Private transactional funding is simply transactional financing that is provided by private lenders. If these lenders are loaning truly transactional funding, the closing agent will provide the closing documentation and instructions for wiring the funds when needed.
If the private lender borrows money from another individual or company to lend the money for transactional funding, he may be violating Federal Mortgage Statutes if he pays his lender money from the interest or fees he is making on the private money loans.
If he uses him own money, this issue should not be a problem. Always seek the advice of an attorney in the state where you live and loan any money to make sure you don’t unintentionally violate the law.
In summary, using private transactional funding can be a huge help in an investor’s expansion of his business because it allows the investor to close wholesale deals that he otherwise could not have completed.