Hedge funds and iBuyers are the “buzz words” in the wholesale industry because of their seemingly unlimited buying power.
They are continuously purchasing thousands of homes, always raising money to buy more properties, and there always cash buyers.
This would make them a logical prospect for wholesalers to sell their deals and many are doing exactly that.
What these buyers are looking for is a very minimum rehab on the property, and preferably cosmetic only.
Most of their transactions come from listed properties that wholesalers can get under contract slightly below the list price, this source of deals depends heavily on the specified fund’s needs.
Every fund has specific guidelines that are available to anyone who asks and often funds will tell you what zip codes interest them.
There is a growing number of so-called “hedge funds” that are in name only, meaning a wholesaler simply names his LLC in the same manner as an actual fund and uses this as leverage to attract wholesalers.
I’ve seen these bogus funds use a proof of funds that you could see was “manufactured” by the “fund manager” but it got them deals.
When funds got active years ago, they would do assignments with investors and a few still do if the net profit to the wholesaler is less than a specific amount.
Nowadays, these same funds mostly do double closings on the same day as the investor purchases the deal, but a few have a guideline not to close for several days after the A to B closing.
These types of extended transactional findings are deal killers for transactional lenders because of the risk the fund doesn’t close after the A – B “leg” of the closing has been fully paid.
In my experience and insider comments by closing agents, the funds only close about 50% of the time.
Some funds are better than others, but you have a large risk right up to the day of closing.
Most funds use their own purchase contracts and their cancellation clause allows them to get out of the deal through the day of closing.
The other risks in dealing with these funds are they often want a discount for repairs just before closing which can take your expected profit to virtually zero.
If they cancel, you won’t have time to resell your deal because it is literally a retail property, and retail buyers take time to close as they are seldom cash buyers.
If your profit is substantial (over $35,000 as an example) the fund may cancel at the last minute and go directly to the seller and “steal the deal”.
These buyers can be fantastic, but they also come with “Seller Beware!”
If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
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