Flash cash, often referred to as transactional funding, is a word used in real estate to describe money that is borrowed for a very little period of time, typically for a day or two, particularly for the double closure of some agreements.
Real estate wholesalers frequently use flash cash. They purchase a property from a seller who is motivated at a bargain and sell it to an end customer who wants to pay more for it in a day or two. The distributor gives back the borrowed flash cash right away when the end buyer makes payment and keeps the difference as his or her personal profit.
Flash cash is employed when both closings are planned to occur simultaneously since it allows for a nearly rapid repayment of the loan (thus the name “flash cash”). Investors can completely participate in wholesaling using this short-term financing strategy without using their own funds.
Without having access to this kind of same-day funding, the real estate wholesaler would have to assign the contract in order to close, which is a trickier and separate closing procedure that has its own set of special difficulties.
How Does Flash Cash Work?
When an ultimate buyer is established, well-documented, and guaranteed to pay, a rapid cash loan is typically arranged from a hard money lender or private money lender. In other words, the final customer can afford to pay and is expected to do so as soon as the wholesaler buys the house from the motivated seller. The final purchaser’s sale revenues are utilized to pay back the quick loan.
For any kind of real estate, including residential, commercial, land, and industrial, flash cash can be received. The agreement can be completed as long as the final consumer is prepared to make the payment and the lender can confirm all the pertinent information before releasing the funds.
Process Of Closing A Deal: How Does Flash Sale Affect This?
- A real estate wholesaler identifies motivated sellers, or those who are eager to sell their property as soon as possible and at a reduced price. They reach an agreement together. The initial transaction is this one.
- After finding an end buyer, the real estate distributor agrees to a price that is more than what the seller is ready to accept. The second transaction is this one. In addition, they agree upon the close date, which must coincide with the initial transaction.
- The wholesaler then obtains a flash sale loan in order to gain title to the property and obtain possession of it from the seller.
- The wholesaler returns the borrowed flash cash as soon as both transactions are finished and sold while keeping the difference as his profit.
Is Obtaining Flash Cash An Expensive Procedure?
The cost of getting flash cash is high despite the fact that it is only needed for a day or two on average. The lender, the borrower, the amount being borrowed, and other hazards associated with the arrangement all affect the cost. Depending on the loan amount needed, many quick cash lenders will impose a flat fee of 1% to 2.5%.
Commonly, the complete cost of the property is anticipated to be covered by the flash cash loan. Although it can take up to a week, depending on the agreement, the lender is expected to be reimbursed within three days. On the other hand, some lenders provide extended transactional loans for up to 360 days. Others just set a flat rate, while some lenders base their interest on a percentage.
Getting Access To A Flash Cash Loan
The majority of quick cash lenders demand that the wholesaler have an end buyer already under contract and provide evidence of the final buyer’s ability to pay to conclude the deal.
To make sure there are no past difficulties, collections, or judgments against the borrower, the lender can also investigate the wholesaler’s credit history. They can also perform checks on the actual property by using a desktop analysis and taking photos of both the inside and outside of it.
Since the borrower’s capability to obtain financing is heavily relied upon, it is crucial for the lender to confirm the borrower’s ability to use the revenues from the end buyer to repay the loan as promptly as possible. If the final buyer withdraws after the first transaction has been completed and the borrower is unable to pay back the loan right away, the lender may take the following actions:
- Compel the borrower to obtain loans from a traditional bank
- The lender may take control of the property and refurbish and sell it if the state of the property or the borrower’s credit precludes a standard refinance.
- A wholesale sale of the property to a different borrower may be arranged by the lender, who would then collect a time-based interest fee.
Does Flash Cash Have Advantages?
In fact, there are many benefits to using Flash Cash. The following are some benefits a set of flash cash might offer a wholesaler who intends to practice double closing:
- The wholesaler can lessen the likelihood that both the seller and the buyer will try to back out of the deal by separating them with double closing.
- Flash cash typically represents 100% of the price of the property, which eliminates the need for the wholesaler to spend his own funds during the transaction.
- In doing so, it equalizes the investor’s position with that of final consumers and gives them an advantage in the sales negotiation.
- Any property, including raw land, condos, single-family homes, and multi-family homes, among other real estate properties, can be transacted using flash cash.
- A flash cash loan is perfect for a quick closing because it can be funded in just a few days.
- Even while flash cash isn’t always inexpensive, hard money loans are more expensive than flash cash.
Cons of Flash Cash in Real Estate
Even though Flash Cash has a lot of benefits, some transactions may not be appropriate for it. Here are a few drawbacks:
- Flash cash is an extremely short-term loan, as its name suggests. The majority of lenders demand complete payback within 1 to 3 days, and those that prolong their periods impose exorbitant interest rates.
- Some title companies and final purchasers might be unwilling to cooperate with this finance strategy.
Here are several inventive ways to obtain loans in cases where an investor is unable to obtain flash cash loans or if the method of funding is not supported by end buyers:
- Private money lenders
- Hard money loans
- Bank loans
- Home equity line of credit
It is simple to secure funding for a real estate deal or property that has prospective worth; it only depends on the possibilities being looked into and whether the value is obvious.
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