Straw Buyers In Real Estate


Can Straw Buyers Ever Be Legal?

I was contacted by an investor who asked about using transactional funding. I explained the process and asked him to send me his signed purchase and sale contracts. He complied and when I called the closing agent to confirm that I was the “funding partner” of the investor the closing agent shouted at me that the transaction was illegal!

She went on to explain that I was a “Straw Buyer” and her attorney boss would not do the closing.
I tried explaining that I was not the buyer and the investor would be on title, but she wouldn’t listen.
After talking to the investor I requested that he change title agents and move on to getting the deal closed.

The investor emailed the closing agent that he was transferring the closing to another attorney.
In about 15 minutes he got an email back saying that her attorney had “reconsidered” and would do the double closing. She also called me and explained that she had spoken “out of turn” and apologized profusely.

What this agent was referring to as a Straw Buyer transaction is not illegal. A Straw Buyer is a person or entity that is buying a property on behalf of another individual for reasons known only to the buyers. The term Straw Buyer became infamous in the mortgage meltdown era when criminals used unsuspecting people to qualify for mortgage but then never made a monthly mortgage payment. The scam was to get people with good credit to take out loans to buy the properties the scammers had previously purchased.

The scammers then used a corrupted appraiser to over-value a property and move to get a loan to fund the purchase by the victim. The scammers would then sell the over-valued to the victim and make a huge profit. Without going into excruciating detail, the scam worked very well and these guys made millions of dollars before they were caught and sent to jail.

Because of this the term “Straw Buyers” has since been associated with fraud.
However, a much more common past and present-day use of Straw Buyers is where a buyer wants to buy a property anonymously. This is common among famous movie stars, wealthy individuals acquiring multiple properties and large companies.

In fact, one of the best-known legal uses of Straw Buyers was used by Walt Disney to accumulate vast acreage in Orlando Florida for Disney World. If land sellers had known that Walt Disney was buying the property for a new theme park his land cost would have skyrocketed and ultimately been too expensive. He used land trusts as his buying entity and these legal entities are still used extensively in real estate investing by savvy investors.

In the above double closing the actual agent who had argued with me about my being a Straw Buyer was corrected by her attorney and the firm did close the deal. This may not be the case if you are dealing with a stubborn agent or he/she simply doesn’t understand what you are trying to do.
If what you are trying to do isn’t legal, you’ll have trouble at every closing agent.

As a buyer you have the right to choose the closing agent unless the contract stipulates another closing agent. Your control lies in your paying for the title work which you may contractually have been required to do anyway. Whoever picks the closing agent controls the closing so it’s important that you do your purchase and sale contracts correctly from the start.

If a Realtor® is involved he/she will try and force a specific closing agent on you. Often the Realtor’s Broker owns the closing agent and you can forget about double closings. Fight to use an investor-friendly closing agent from the start to greatly simplify your life!

I wish you limitless success in all you do,
Dave Dinkel

What is an A-B-C Closing in Real Estate?

As soon as I think I have seen it all something new pops up.
When I do transactional funding for wholesale same-day double closings I meet literally hundreds of closing agents and closing attorneys across the country.
Every once in a while, I have some interesting feedback about their closing practices.

ABC Closing in transactional funding

Very often a new investor gets confused about the specifics of the closing cycle.
I can help because I have done thousands. Investors are eager to listen and learn especially when they have serious profits at stake. If the closings don’t happen everyone from the investor to the end-buyer loses everything.

The closing agent should be the focal point of the transaction always working with all the parties to get the deal to close. Unfortunately, the actual people doing the closings may be paid hourly.
With little incentive to do more than is minimally required, the closing person can be set in his/her ways about how they are willing to do the double closings. This is especially true if the investor isn’t familiar with the closing process and who funds what parts of the closing cycle.

Some of these closing agents are so set in their ways that they flat say “no” to practices that are very commonly done by other closing agents perhaps a few hundred yards away.

Being specific about what you want done in a double closing, assignment of contract or with a Joint Venture (“JV”) Agreement is critically important. As an example, I had a new investor call me about transactional funding who needed the funds in two days.

My process is very simple, I have the investor send me the A – B and B – C signed contracts and then tell the closing agent to copy me on correspondence for the closing.
The reason for the copies of the purchase and sale contracts is to give me information that will be critical to the closing.
This includes the Seller, Buyer/Investor, the End-buyer, closing agent(s) and information about the property.
I then call the person doing the closing and explain that I will be funding 100% of the money due from the investor on the A – B leg and I get paid back from the B – C closing leg.

In this case the investor had contacted a closing agent she was referred to and said the closing would be an “A-B-C” transaction.
The closing agent responded that her attorney-owned firm could not legally do this type of closing and there were no exceptions.
This left the investor with having to do a double closing at two different closing agents which may be workable, but it can be risky for a transactional funder.
This problem of agents not wanting to do double closings is not uncommon and often misguided.
Double closings are important when the profit spread is large or secrecy of the sale by the investor is important.
Too large a profit is in “the eyes of the beholder” and can be $10,000 or greater depending on the sale price.
In some cases, I have seem sellers say they wouldn’t close because the investor was making too much and in one case this amount was only $2,500.
What I suggested to the investor was to switch the closings to another agent/attorney who does a huge volume of investor closings.
While the two-day deadline had to be extended the double closing went off without a hitch and all parties were very satisfied.
What happened that the one agent wouldn’t close the original transactions?
As I reviewed the email chain and talked with the investor, it was clear that the use of the term “A-B-C” closing meant something different to the agent.
One thing that every investor tries to do is use the end-buyer’s funds to fund his original purchase.
Without going into the legalities and actual practices, it is safe to say that most closing agents and title insurance companies do not allow these transactions.
There are exceptions and disclosure to the seller and end-buyer becomes critical to legally making them work.
This required disclosure is usually a deal killer since the seller and end-buyer know what the investor’s profit is in the transaction.
In the above case the agent the deal was transferred to was able to do the title work and get both legs (A – B and B – C) closed to everyone’s satisfaction.
As more and more states ban Assignments of Contract, Sale of Contracts and even Joint Venture Agreements investors are focusing on doing double closings as standard operating procedure instead.

Insight – be very clear about what you are trying to achieve when you go to a closing agent.
If you aren’t certain, ask the transactional funder you will be using before you send the closing agent your purchase and sale contracts.

I wish you limitless success in all you do,
Dave Dinkel

PS – In some cases when the closing agent is alerted that the closing is being moved they have a sudden change of heart! The title work they have done does cost them and that cost can be paid in the closing HUD by the investor – or not…

What are POF’s and VOD’s

Same Day Real Estate Funding or Transactional Funding.

real estate funding

Real Estate Funding

If you’re wondering, “what is transactional funding?” you are not alone. It’s a practice that has been around for some time, but it’s not well known outside of real estate and investment circles.

The staff at Best Transactional Funding has more than 44 years of experience in the field, and we’ve decided to create a handy introduction to what it’s all about.

The first thing to know is that transactional funding is a process that allows investors to make real estate deals quickly by relying on money provided by a funding partner. If you are working with us, for example, we supply you with the money for your purchase of a property that already has an end-buyer.

You, the investor (known in these deals as B) use the money for usually less than a day as you close with the seller (A) and then later in that same day, the end-buyer (C) closes.

A very simple example can be seen in this scenario: You are a homeowner that wishes to sell your home to a prospective buyer, but the bank still has money owed to it that must be paid before any deal can go ahead. A transactional funding loan allows you to pay the bank so that you can then sell the property to the end-buyer.

As we stated, the previous example is bare-bones, but we hope it’s enough to provide an idea of how this funding works. We will cover more in further blog posts, so check back soon.

If you would like any further clarification or have any other questions, please feel free to give us a call 954-274-1003

Best Transactional Funding

What is the best transactional funding for you?

What is the best transactional funding for you?

As a real estate investor, you have several ways to finance your purchases.  Which is the best transaction funding is depending on your exit strategy of the property.  There are only three options which are: you will be buying to wholesale, buying to hold and rehab or buying and holding for income.

The best transactional funding for all these possibilities is to find a “true” Private Lender who will finance your purchases.  Private Lenders are individuals who loan personal funds to investors to make more money than they can make in the bank or in the stock market.  Theoretically Private Lenders can provide transaction funding to all three needs that investors have.

Typically, when a Private Lender makes a successful loan or two, he starts to become a “soft” hard money lender.  This means he doesn’t have all the stringent requirements the professional lenders require, but his lending rate and qualification for loans will gradually increase to what the market will bear. Too many hard money lenders call themselves Private Lenders to disguise what they will be charging for your loan.

For wholesaling an investor needs transactional funding for a same-day double closing or extended transaction funding if the End-buyer can’t close the same day.  If the two purchases and sales take place on the same day the investor can expect to pay between 1% and 2+% of the amount the transactional funder brings to the initial closing.

If the transaction must close and the End-buyer can’t get his transaction funding completed on the same day, the investor can expect to pay 3+% for 30 days and 1% per month after that – hopefully.  I say, “hopefully” because most transactional funders have stopped doing extended transaction fundings because of the risk of the End-buyer not closing.

For purchases with the intent to rehab, the investors will need hard money loans.  Because of the Mortgage Meltdown and the huge losses hard money lenders experienced, hard money now lives up to its name.  This means that each borrower is screened for his background in rehabbing, his credit report and how much money he is putting in the deal. Newer investors, or if credit challenged, face the prospect of paying junk fees, closing points, personal funds up to 30% of the purchase price and interest rates to 15%.

For investors who wants to be a landlord, he will sometimes get a hard money loan to purchase the property, do the necessary rehab and then refinance with a conventional lender (bank, savings and loan, credit union, etc.) to get a livable interest rate for holding.  He will have to qualify for this conventional loan and will have to put 10% to 20% into the cost of the purchase.

In summary, what is the best transactional funding for you depends on your exit strategy and the cost of money if you are going to hold a property.  It is important to shop for a lender and rates before you are forced to accept a last-minute choice.  Always ask about any additional fees especially with hard money lenders who can have junk fees.

Dave Dinkel

Search terms – best transaction funding, hard money, conventional loan, private lender, double closings, extended transactional funding, real estate investors

Transactional Funding

Transactional funding when to use it

Transactional Funding and When to Use It

Transactional funding in real estate is a very common and much accepted practice for wholesalers doing double closings.  Many times, a wholesale will put a property under contract and find a buyer for it and make a profit.  The issue is how large a profit is involved?

It’s not hard to find motivated sellers who will sell their properties below market value because of some pressing circumstance.  This motivational problem is often related to a pending involuntary sale such as tax deed or foreclosure.  These pending problems will have specific sale dates, so the property owner must act or lose his property.

There are other reasons for sellers to be motivated to sell and include but are not limited to: probate, two mortgages, transfer or simply the seller has no interest in the property, and it is a burden to keep.

These factors allow savvy investors to put a property under contract to purchase.  Next they find another buyer (End-buyer) and sign another contract with him to purchase the property.

Most often the investor does not actually have the funds to purchase the property from the original seller.  But he does have two common options to still make a profit on the transactions.  First, the investor can sell or assign his Purchase Contract from the original seller to his End-buyer.  The only potential problem with this method is that both the original Seller and the End-buyer will see how much the investor made on the transaction.  This could result in either party to the transaction cancelling at the last minute.

The investor’s other option is to use Transactional Funding for the initial purchase of the property.  The End-buyer will then buy the property, usually the same day, and his funds will repay the Transactional Funder.  The investor borrows the Transactional Funds without regard to his credit or the value of the property.  All that really matters is that the End-buyer has cash to close on the same day as the investor buys the property.

Assigning or selling the investor contract saves on closing costs that he would pay in a double closing.  The risk is cancellation by the original Seller or the End-buyer and for that reason assignments result in very small profits.  However, a double closing temporarily hides the investor’s profit from both the original Seller and the End-buyer.

The question often comes up, “How much is too much of a profit?”  The answer is not simple because it involves the mindsets of the Seller and the End-buyer.  Some sellers or buyers may consider anything over 3%, a Realtor® split commission as un-acceptable.  It is certain that if the profit exceeds $10,000 to $20,000+ one or the other party will object or not close.

Because we supply Transactional Funding to investors nationwide, we often see investor profits in excess of $30,000 and up to $2,000,000.  All these double closings are concluded with little or no money from the investors.

In summary, Transactional Funding can be used to complete real estate closings where the investor has little or no money.  They can also be used to not disclose to a Seller or End-buyer how much of a profit the investor is making.  Not all Transactional Funders are created equal so do your due diligence before you need one.

Dave Dinkel

What Real Estate Funding Do I Need?

real estate funding

Real estate funding does not have to be confusing

What are the Types of Real Estate Funding?

Funding real estate transactions depends on the goal of the buyer of the property. The real estate funding can be either Permanent (conventional) or Short-term (gap) funding. The common forms of permanent funding are home and commercial loans. Short-term funding is usually associated with investors who rehab a property or wholesale it using a same-day double closing.

Typical funding for the purchase of a property is for the buyer to borrow funds from a private money lender, conventional lender (bank, credit union, savings and loan, or mortgage company) or use whatever funds he has. Most people are familiar with a home mortgage. In these cases the buyer will look to move into and live in the property. He may also purchase the property for rental income and it could have a permanent loan at the purchase or short-term funding until repairs are completed.

The important parts of these loans are the interest rate, the term of the loan and whether the mortgagor (property owner) pays interest only or interest and principal monthly. These are issued by lenders for a fixed number of months (payments) and have either an interest only or an amortized monthly payment schedule (principal and interest).

Permanent funding or “buy and hold” funding is the end-goal for buyers who intend to live in a property or for real estate investors who intend to rent to tenants. These tenants can be individuals or businesses depending on the legal usage of the property. Homeowners get longer periods on their loans so the payments are more affordable and allow the buyer to purchase a higher priced home.

Commercial loans are typically for five or ten year terms but can have their payments amortized for 20 or 30 years. This allows the borrower to have a lower and more stable cost for the shorter term of his loan. It also allows the lender to take advantage of rising interest rates in the future.

Short-term real estate funding is designed to allow a purchaser a stop gap to permanent funding. For example, in wholesale transactions a property owner sells to an investor who then resells the property to another investor or holds it to rehab or rent. The initial goal is to flip the property after it is rehabbed or to flip it wholesale to another investor.

Rehabbers get short-term (hard money) loans for a portion of the purchase amount and rehab funds. At the end of the rehab the investor can hold the property for rental income or sell it to a “retail” buyer who will live in the property. If he holds it as a rental he will need to refinance his expensive hard money costs to make the property more profitable.

Wholesalers borrow transactional funds for same-day double closings when they have no money themselves or if they can’t assign their Purchase Contract to an end-buyer. These funds are borrowed to provide the funds for initial purchase from the original property owner and then enable the sale to an end-buyer. True transactional fundings have both the purchase and the sale done on the same or following day. If the initial purchase and sale can’t be done on the same day the funding is called Extended Transactional Funding.

Extended transactional funding, also called Gap Funding, can be from a few days to 120 days. It is often used when an investor has to purchase a property by a deadline but his more permanent funding is not available. Typical transactional funding is loaned for 100% of the purchase amount due at closing. Extended transactional funding can be for any amount the lender deems appropriate from as little as 70% to as much as 100% of the purchase price.

In summary, there are a myriad of ways of funding the purchase of a property each of which depends on the needs of the buyer. First determine if a specific type of real estate funding fits your needs and then compare prices and terms with various lenders.

Dave Dinkel

Search Terms – real estate funding, transactional funding, hard money loan, permanent funding, same-day double closings, gap funding, extended transactional funding, permanent funding, commercial funding, home mortgage, short-term funding, buy and hold funding, rehabbers, wholesale investors


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Best Transactional Funding Blog

Transactional funding is a dynamic and exciting tool for real estate investors. It’s a proven way for investors to buy and sell properties with little or no money all the while also making tidy profits.  It’s also a specialized niche with many details to learn, procedures to understand, and steps that can be explored to maximize your profits and enjoyment of real estate investing and wholesaling.

That’s why we have created this blog. We will be sharing tips, advice, and guidance that we have gained from more than 44 years of experience in the field. We’ve picked up many valuable pointers and skills over that time, which we feel will become priceless knowledge for our clients and other investors. When everyone in the game knows the rules, it makes it easier for everyone and provides a reliable playing field.

The best transaction funding is readily accessible and does not come with a heavy price tag.  We provide it quickly and with minimal fuss from the most trusted and experienced player in the industry, as you will find with us at Best Transactional Funding.

Maybe you’re a long-time investor looking for new trends in the market or a rookie learning the ropes, but whatever your status you are sure to find very helpful and insightful support contained in the messages we will present. So, welcome to our blog and feel free to come back at any time.

Due to popular demand, we’ve expanded the number of states where we provide transactional funding.  We now can service real estate transactional
funding in Florida, Georgia, Alabama, Tennessee, North Carolina, South Carolina, Virginia and Texas and shortly in an additional 20 states!  Make sure to follow us on social media for any future expansion as well.

Dave Dinkel

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