Transactional Funding: Temporary acquisition financing used by real estate investors to purchase investment properties which are pre-contracted to be resold for a profit within a short timeframe.
Delayed Closing: This is a type of flip transaction whereby both the purchase (A to B) and the sale (B to C) contract are in place and no rehab is required for the sale, but the sale cannot take place immediately. This commonly results from seasoning requirements, title restrictions, or legislative or lender requirements.
Dry Closing: Refers to the acquisition closing (A to B) in a Flip transaction whereby the investor (Party B) does not bring funds to the table, but the transaction is closed using the funds from the end Buyer (C). This is known also as a Double Closing or Simultaneous Closing. While this practice was at one time common; it is now widely not allowed as it is viewed as co-mingling of funds.
Back to Back Closing: Two closings, the acquisition and subsequent resale of a property, scheduled to take place one after another. Also known as a Consecutive Closing.
Extended-Term Loan: This loan is used for delayed closings; whereby properties will be purchased and require up to 60-days to close the B to C transaction.
Flip Transaction: A transaction completed by a real estate investor whereby the investor purchases a property and resells the property for a profit without investing further capital into the property
Seller (A): Party A is the current owner of the property which is being sold to the Investor / Borrower (B) who will subsequently resell the property to the end Buyer (C).
Borrower (B): Party B is the investor who is using Transactional Funding to purchase the property from Seller (A) and resell it to the end Buyer (C) for a profit.
Buyer (C): Party C is the end Buyer who is purchasing the property from Investor/Borrower (B) who purchased the property from Seller (A).
Double Closing: Refers to the acquisition closing (A to B) in a Flip transaction whereby the investor (Party B) does not bring funds to the table, but the transaction is closed using the funds from the end Buyer (C). This is known also as a Dry Closing or Simultaneous Closing. While this practice was at one time common; it is now widely not allowed as it is viewed as co-mingling of funds.
Simultaneous Closing: Refers to the acquisition closing (A to B) in a Flip transaction whereby the investor (Party B) does not bring funds to the table, but the transaction is closed using the funds from the end Buyer (C). This is known also as a Dry Closing or Double Closing. While this practice was at one time common; it is now widely not allowed as it is viewed as co-mingling of funds.
Seasoning: A required time period within which the title of the property cannot be transferred. This is most commonly the requirement of either the sellers or the buyers lender.
REO: This stands for Real Estate Owned; which means that the property has been purchased back by the foreclosing lender at auction and is now owned by that lender.
Bulk REO: This is an aggregation of REO properties packaged to be sold in a lump sum This is also known as an REO tape.
Short Sale: A short sale is used to describe the sale of a property whereby the lender(s) is paid less than they are owed on the mortgage(s). This practice is most commonly used for properties which are either facing foreclosure or are worth less than is owed.
Fix and Flip: A real estate investor transaction where the investor purchase, makes improvements and then markets and sells a property. This is also known as a rehab.
Hard Money: A non-conventional type of lending whereby the lender is underwriting the loan based more on the value of the asset (typically real estate) and less on the borrower. These types of loan are usually used as short term bridge financing.
Wet Closing: An A to B, B to C transaction whereby party B and party C provide separate funds to close their transactions independently. With the change in some state laws and the policies of closing companies, this is the most common practice for flip transactions.
LTV: This stands for Loan-to-Value; which is total amount of the loan versus the current, as-is value of the property, represented as a percentage. (for example: if you are buying a property that is worth $100K and your loan is $75K; your LTV is 75%)
ARV: This stands for After Repair Value; which is the estimated value or sales price of a property after it has been rehabbed and all repairs are completed.
LTC: This stands for Loan to Cost; which is the total amount of the loan versus the total cost of acquiring the property; represented as a percentage (for example: if you are buying a property for $100K, including closing costs, and your loan is $100K, your LTC is 100%).
Hard Earnest Money: Earnest money which is no-longer refundable to the buyer and will be forfeited should he/she not be able to perform by closing on property.
Net Profits: The actual amount of money that an investor makes on a property once closing and financing costs have been deducted.