subject: 2 Ways to Close an REO House Flip [print this page] REOs, or real estate owned by lender, are great investment properties. One of the many reasons for their profitability is their price. They are deeply discounted by banks. However, if you're doing a house flip, the typical method of placing them under contract might now work. Lenders that own these properties usually will make the REOs non-assignable. It doesn't mean that they can't be flipped though. There are still two ways to close such transaction.
An REO house flip may be closed through a simultaneous double closing. In this method, which is also called a "dry close," two transactions will be completed simultaneously, or within one day. The first transaction is the bank (seller) selling the house to the investor (buyer). The other transaction is the investor (seller) selling the house to the end buyer (buyer). Closing with this method will allow the investor to flip houses without using his own money.
However, this closing is advisable to investors who already have good rapport with the end buyer because that end buyer will provide the cash for you purchase the property. Since he'll be paying you the money anyway, he'll simply lend it to you for a moment so you can close first. Then, the second transaction will proceed. It is also better if you ask a title company first if it has experience in doing such closings.
The other method of closing an REO house flip is called a true double closing, which is also known as a "wet close." In this method, the two transactions are not done simultaneously. The investor must first complete the first transaction, which is buying the house from the bank. Then, he will sell the house to the end buyer. Therefore, the investor will need to have his own money. Or to put it more accurately, he needs to have access to money.
If you're just starting to flip houses, it's not the end of the road for you. You can borrow "transactional funding" from private lenders and hard money lenders. These two types of creditors aren't like banks and other lenders. They are after the profit they'll make by funding the deal for you. They have a sense of urgency because they know that if you lose the deal, they will also lose the opportunity to make money from your deal. Once you obtain the funding, close transaction A and proceed with transaction B. Then, pay your loan and enjoy your profits.
