Two Ways to Fund Wholesale Flips, REO or Short Sale
Here are two common ways that real estate investors use to finance house flip transactions without using any of their own cash or credit. These strategies are used by wholesalers who are flipping short sales, pre-foreclosure or REO properties.
- Simultaneous Closing Using B-to-C Buyer’s Lender Funds
- Back-to-Back Closing using Transactional Funding Loan
Both these types of flip transactions have the same initial requirements, which are Side A to B, and B-to-C side contracts secured by the investor. When the contracts are executed, the investor places them both in escrow at a single title company or closing attorney. The difference between the two types is how the Side A to B transaction is funded.
In a simultaneous closing, the the end-buyers lender funds the B to C contract closing first. The side A to B side is waiting to close immediately afterward, and then the funds are disbursed to Seller and profits to the investor. The order of recordation of the title deed is orchestrated by the title company so there are no title defects. It is called simultaneous, but for all practical purposes, the investor has sold the property before he or she closes on the purchase. This procedure was widely accepted by title companies for many years, but is now rarely allowed.
A back-to-back closing is similar in process, but with one major difference. In a back-to-back closing, the investor funds Side A-to-B transaction, separately from the end-buyers financing or cash. He or she closes the purchase of the property before selling it to the end user and does not use the end buyer’s funds.
Title Company Closing Rules Change
Because of increased industry scrutiny and the many changes in title company internal regulations, investors are being forced to fund their side of the transaction using a back-to-back closing and transactional loan. These types of loans are often called “Flash Cash” because they are paid back very quickly.
Also, there has a bit of change in the terminology. A simultaneous closing has historically been known as a seller financing technique, where the private mortgage note created by the seller is sold to a note buyer upon closing. The term simultaneous closing has been expanded in recent years to include flipping the deed to a property as well as the note.
In conclusion, a simultaneous closing means that the investor uses the buyer’s money to purchase the property and then resell the deed without funding his or her purchase. In a back-to-back closing, both sides are funded separately.