Many real estate markets have completely rebounded after the 2008 housing crisis. Real estate is back to being a profitable investment opportunity for many. However, how do you handle short-term cash flow issues between buying one property and selling it to the line-up buyer? Enter short-term funding.
What It Is
Most commonly used for real estate short sales, transactional funding is known by many names including flash funding, same-day funds and short-term funding. A bank offers to loan the money to the investor on a short-term basis. These funds then can help the investor by the property and turn around and sell it. Usually, the buyer of the property is already lined up. It comes to a delay in closing times. The bank must first approve of the property to secure their interests. The existing owner may not have the ability to pay off the bank’s interest in the home in order to sell it.
How to Close
The funding involves two separate contracts. The first contract is the home mortgage of the original homeowner. The second contract is the purchase agreement between the prospective and existing homeowners. Because there are two contracts, there are two closings. During the first closing, the bank loan is paid off securing their interest. The second transaction involves the buyer purchasing the property using an investor intermediary. Two closings mean two title searches to make sure all liens on the home whether by the bank or other entities are paid and the title is free and clear. Even after the first closing, a title search should be done to include that transaction as well.
Other Funding Options
Short-term funding has been used by entrepreneurs and public administrators. An entrepreneur can use the option to restructure a deal not otherwise available to them. The city official may use the funding to build a park when trust revenue and tax support fall short. The mechanisms may be slightly different, but the process is similar.
