When Transactional Funding Alone Won’T Work (Transactional Funding, Part 3)
However, there are times that transactional funding alone will not work to smooth the short sale flipping process. This occurs in a deal in which there is a mandatory "seasoning" process, which requires a buyer to hold a property with their name on the deed for a period of days, weeks or months before they can sell. As you can see, this can seriously slow the flipping process, especially if you are dealing with a buyer who wants to move in immediately. Seasoning is another method that legislatively works to help prevent fraud, but many investors feel that it is also deliberately designed to make flipping difficult and target the real estate investing community. There are two ways to deal with seasoning:
1. Find a way to work with it
2. Only invest in areas that do not have seasoning laws
It appears that many governing bodies are starting to see the flaws in the seasoning process, and many lending and legislative bodies are taking steps to undo the regulations that require seasoning. However, at this point in time, it is still something that you must consider before you flip a short sale.
If you are required to season a property before selling, then you will have to obtain some source of funding that will enable you to hold the property for the required period. This may involve credit checks, but many investors have found that private money lenders are a good source of funding in these cases, just as they are for construction loans and rehab deals. It is vitally important that you find out the seasoning laws and rules in an area before you set up a short sale deal. Otherwise, you may find that you have devoted a lot of time and energy to a lost cause if you are unable to season the deal as required.
There are some cases in which you can creatively work out a way to enable a buyer to basically take possession of the property during the seasoning process. However, these methods must be carefully checked out with an attorney to insure that you do not jeopardize your own funding or your buyer's in the process.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
Questions and Answers
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The key reason why some firms thrive while some implode during an financial recession is still a puzzle to many people business-owning business owners. Some wrongly assume that all businesses should suffer via recessionary cycles. But the truth is that some companies are usually essentially recession-proof, and it is not necessarily because they are much larger, better known, or a lot more generously capitalized.
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In the last article, we talked about how you can still flip properties – literally overnight in some cases – in this economy. However, the key to this type of speed actually lies in your willingness and ability to network and set up buyer connections ahead of time so that when a good, qualifying deal arrives, all you have to do is make the call.
Historically, simultaneous closings were a great way for real estate investors, buyers and sellers to all get their “piece of the pie” very quickly in a real estate flip. Simultaneous closings occur when a seller signs a contract selling the property to a real estate investor. This contract is put into the hands of a closing attorney. At the same time, the investor signs a contract selling the property to a third party buyer, contingent on that buyer’s ability to fund the transaction.
In today’s lending environment, most lenders will not lend money for a transaction unless the name of the owner of a property is on the deed to the property. Lenders say that this is because they are attempting to prevent lending and real estate fraud. They say that it helps them insure that the property is actually in a position to be sold. Many of my colleagues say that the real reason is far simpler: it is a way for the lenders to make some extra money.
Whether you have done short sales in the past, or you have educated yourself about these transactions, you are probably fairly familiar with the basic function of the real estate deal. Essentially, the owner of the home gives a third party the right to the deed of the home and to negotiate with the bank for a discounted price on the home in exchange for avoiding a foreclosure.
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