Today, the real estate market is such that it is hard to get hard money. Some hard money lenders have gone belly up, while the ones in business have tightened their underwriting procedures.

Before you get funded, you have to make payments in points plus other fees in addition to high interest rates. These payments can quickly eat into your profits. Of course a lot of them now even need credit rating to lend hard money.

Most real estate investors no longer do the deals they used to finance with hard money because of this. In this article we cover how you can finance your REOs and short sales.

Banks always need to see proof of funds before they can allow the deal to go through. A lot of real estate investors used to depend on hard money lenders for this. You private money source can be your proof of funds.

If you are a wholesale real estate investor, the process will work the same except source of funds will be private money. Contract assignment cannot work in this case. You have to buy and sell the property through simultaneous closing.

The process goes something like this:

1) Identify the right property
You need a good amount of profit to do a simultaneous closing. This is because you will have to cater for some closing costs both when buying and probably when selling the property. Your big profit margin should absorb these costs.

A profit of $10,000 and above is good enough.

2) Identify your wholesale buyer
The wholesale buyer buys the property from you, sometimes a real estate investor. You usually end up selling your properties at a discount price.

Get proof of funds or your deals could fall through!

You will then sign a regular purchase sale agreement with them.

Your buying price will have to be lower than your selling price.

3) Get your private money to the title company
Get the private money investor wire the money to the title company. The first transaction will be closed using this money.

This transactional funding should cost you between 1-2%.

4) Your title company closes the two deals
Once the buyer has wired their money to the title company, you will walk home with the difference between your buying price and your selling price, minus the transactional fees you pay your private money investor.

Since your fees are much less, you end up making more money. This type of transaction works like this:

$100,000 – after repaired value
$50,000 – bank accepts your short sale offer
$75,000 – price you sell to your buyer
$25,000 your profit at closing
Costs:- $1000 private money fees plus any closing fees

Since you buy houses cash, you get them at a lower price than regular buyers.

You can use this method for both short sales and REOs. Most private money investors would love to lend money this way.

Simply said, the private money buys property from the seller and you sell it the same day to your buyer and walk away with the difference.