As an EX transactional lender, you need more brains, knowledge, due diligence and experience than money...It was not a good experience and all the scam artists come out of the woodwork to prey on the unknowledgeable lenders...... Rich
You need enough to do a deal. If your borrower needs $100K to complete a transaction, you need to be able to supply the $100K.
Visit some REIAs in you area and start asking around about transactional funding and hard money lending. You'll probably find someone who's running a pool.
No legitimate operator will take your money after one meeting, nor will you want to give you money to such a person.
As an EX transactional lender, you need more brains, knowledge, due diligence and experience than money...It was not a good experience and all the scam artists come out of the woodwork to prey on the unknowledgeable lenders...... Rich
LOL, Rich, it ain't rocket science. It's when you get tied up with someone that gives you a line of assurances and promises that aren't usual and customary, or based on some preceived notion that the guy you are dealing with really can follow through is where you get in trouble...IMO.
Due diligence cuts both ways. Just because some broker or borrower has good posts on a real estate site, doesn't mean they know what they are doing....IMO
Like Jon said, you need enough to do the deal. But, if you are going to make more than a couple loans, you may be then considered "being in the business"
Check with your state finance department for requirements. Most require an net worth requirement, a bond posted and a license.
If you act illegally you could be at risk of losing the principal amount of the loan. However, transactional funding is about the risk free way of lending, IMO. You know the payoff is there before you ever fund a deal. Going beyond closing will then carry much more risk.
You hit a lot of the problems lightly. They are more serious than that. The usury laws can cause serious problems, as well as many of the other items mentioned. MO is one we lucked out in . Bad subject. Rich
Not all states have usury laws of real estate, MO is 10% by individuals and the minimum loan is 5K. I have not heard of anyone getting nailed on it for over 15 years now.
I would assume anyone thinking of conducting any new business would check to ensure compliance with applicable laws. It cab be tricky!
You made my point. Without knowing, I made a loan in MO that would've been usury, and voidable. There are only a few states where Transactional funding would be legal, imo. Go get a loan, then don't pay it and declare it usurious. You might end up with free money- never having to pay off loan... Rich
As an EX transactional lender, you need more brains, knowledge, due diligence and experience than money...It was not a good experience and all the scam artists come out of the woodwork to prey on the unknowledgeable lenders...... Rich
I've never loaned nor borrowed transactional funds, so maybe I'm missing something, but how is there any risk whatsoever?
If you specify in your escrow instructions that the B->A funds not be released until the C->B funds are available, how can you get scammed or swindled?
Sorry if this is something obvious that I'm missing...
Hey Rich, what do you think about investing funds with an experienced transactional lender? IOW, one who is already operating and making money. Any thoughts about simply jumping on their coat-tails? Thanks.
P.S. - I agree with you, it's not something I would want to jump into solo.
That's a good way to lose it, give it to a broker who might "misappropriate" the money, get it tied upand then can't meet his obligation to you!
As Jason was asking, if the funding is in the closing instructions, it's pretty hard to lose it....unless the title company goes bust and that has happened too!
Mitch, financialexaminer said broker because most people who offer any type of loans in califorinia, including transactional lending, need a brokers license to avoid usury issues.
Mitch, financialexaminer said broker because most people who offer any type of loans in califorinia, including transactional lending, need a brokers license to avoid usury issues.
Thanks Chris. I was hoping you'd see this thread and chime in.
I'll e-mail you next week so we can chat about some things. :idea:
Mitch, financialexaminer said broker because most people who offer any type of loans in califorinia, including transactional lending, need a brokers license to avoid usury issues.
Yep! If you're "in the business" of lending money in any state now,you'll need a broker's license.
The best thing is not to give your money to anyone other than the closer/title company. The broker can arrange it and get paid, but you need to "fund at the table" with certified funds......the fewer number of fingers that touch it, the lower the risk of losing any of it.
Hell Everyone,
I'm wondering how much liquid cash one needs to be a transactional funder?!
You will need enough capital for current deals and any potential concurrent deals. Nothing will kill your business and reputation quicker than not being able to fund a deal you have made a commitment to.
Mitch, financialexaminer said broker because most people who offer any type of loans in califorinia, including transactional lending, need a brokers license to avoid usury issues.
Thanks Chris. I was hoping you'd see this thread and chime in.
I'll e-mail you next week so we can chat about some things. :idea:
Hey Mitch, It was great seeing you again at the OC Investor Club meeting (one of our local REI clubs) Feel free to contact me anytime.
Hello Chris does the OC Investor Club have a website?
How does one join?
Any fees involved?
No fee to join. There website is http://www.facebook.com/orangecountyinvestorsclub. Once a month there is a meeting with a speaker. If you like the topic and want to come it's usually $25 and includes lunch. I have made some great connections there. In June, the speaker is Bruce Norris. In my opinion, he is one of the best speakers on the so cal market. (Admin, I am not an organizer of the club and get no financial benefit for meeting fees)
Jason- If you are only referring to 24 hr loans, you're fairly accurate. When they are longer than that, all bets are off.
Title companies can close. I'm sueing Stewart Title currently for a rep of theirs in FL, JPO Title that went defunct after some questionable dealings..
My belief is that the MAJORITY of transactional loans are ILLEGAL, due to usury laws. How may someone legally charge 2% for 1 day(730% annually) and not be usurious in 46 States? I believe there are 4 states that are unlimited if it is for business purposes.
I might place money with a lending company that was experienced and had all i's dotted and t's crossed and security for my funds. I would never again do it with a beginner.
Rich
...My belief is that the MAJORITY of transactional loans are ILLEGAL, due to usury laws....
Rich
Rich, to my limited understanding there are 3 ways to possibly avoid usury. I say possibly, because usury law tends to be very vague and up to interpretation. Some states have increased protections for individuals and is why you will often see transactional funders/lenders insisting investors purchase with an entity.
Of the three ways I mentioned above, one is be a broker is the state in which you are lending. In Cali, that means a DRE or Dept of Corp license. Two, at least for CA, is to have a lending license under the Dept of Corp. Again, loans are limited to the state in which you are licensed. Most other states provide this form of license as well. Three, is to not provide a loan at all, but instead to have a contractually based funding agreement that does not involve a promissory note and a deed of trust. There is a lot of lawyer speak that goes into these contracts, but basically it's an agreement that states multiple times the purpose of the funding and how profits, if any, are split. It's not a joint venture agreement, but similar. To my knowledge, Aegis follows this last model.
Cant remember all the jumbo. But when it comes to putting a deal together, a transactional lender or temporary partner (w/e) is a godsend!
I would think if one wanted to dabble in this, it could be easily done by networking with your local wholesalers. If you wanted to create a whole business model, then obviously it would take meticulous planning.
Hell Everyone,
I'm wondering how much liquid cash one needs to be a transactional funder?
Are there agencies or businesses that pool investors' resources to do transactional funding?
You don't need very much because there aren't very many real transactional deals to fund any more! Everyone needs 30 day deals, which aren't really "transactional". IMO, the true transactional deal is on the way to being pretty much dead.
There is risk involved when doing same day funding, there is always risk involved when providing money with real estate the collateral. Same day funding does have much less risk involved than extended term transactional funding. We provide equity contributions to businesses only, i.e. LLC's, not individuals.
To answer the original question, Jon is correct. To become a transactional lender, You need as much as is required to do a deal or to do however many deals you plan on doing.