In the real estate market today, it not as easy to get hard money like it used to be a few years ago. Some hard money lenders have gone belly up, while the ones in business have tightened their underwriting procedures.

In most cases, you have to make advance payments in points before being funded 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. Most real estate investors used hard money as proof of funds. Once you have lined up a reliable source of private money, this can be your proof of funds for your REOs.

If you are a wholesale real estate investor, the process will work the same except source of funds will be private money. Assigning a contract cannot work in this case. You have to use simultaneous closing where you buy and sell the property on the same closing table.

The process goes something like this:

1) Identify the right property
A good profit margin is necessary in order to do a simultaneous closing. This is because you must pay some closing costs both when buying and selling the property. These costs should be absorbed by a big profit margin.

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

2) Identify your wholesale buyer
This is the person who will buy the property from you, usually 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 sign a purchase sale agreement with them to buy the property from you.

Your selling price will of course be higher than your buying price.

3) Get your private money to the title company
Have your private money investor wire the money to the title company. This is the money you will use to close the first transaction.

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

4) Your title company closes the two deals
At closing, your profit is the difference between your selling price and your buying price, less transactional fees and closing costs.

Since your fees are much less, you end up making more money. This is how this transaction will work:

$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 are a cash buyer, you typically get your properties cheaper 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.

Simon Macharia invests in real estate and has done most real estate investing transactions. Learn how a good real estate website can attract private money investors for your business.