Standard cash transaction: A property is purchased with cash or hard money, with no financing contingency.
Standard financed transaction: A property is purchased with financing from a traditional bank with a financing contingency.
Wholesale transaction: A property is purchased by an investor that doesn’t intend to close it for their own portfolio. There is an A-B contract from the seller to the investor and a B-C contract from the investor to the end buyer who could then use the property as an investment, primary, or secondary residence.
Lending (Private and Short Term): The process of loaning money for short term transaction funding or long term secured funding. Lending varies from investing because investors gain ownership or equity where lenders do not, instead receiving a flat return or interest only.
Loan Sponsorship: The process of acting as the qualifying entity or person to obtain a loan for an investment project with a partner.
Seller Carry: A property owned free and clear with the seller acting as the bank to “carry” the loan for a new buyer.
SubTo: A property is purchased with the seller’s existing lien(s) staying in place with the buyer continuing payments on behalf of the seller while taking title and ownership.
Hybrid: A property is purchased with the seller’s lien(s) staying in place AND all or a portion of the seller’s equity is held as a second position lien, a “hybrid” of seller carries and SubTo.
Agreement for Sale (AKA Executory Contract): Sometimes known as a Contract for Deed, Land Contract or Bond for Deed. These agreements are the same as when you purchase a vehicle. The buyer does not receive legal title to the property until the agreement is satisfied or the property is paid in full. The title to the property stays in the seller’s name and the buyer retains what’s called “equitable” title. This type of agreement helps sellers avoid the foreclosure process when there is a default and can instead go through a non-judicial forfeiture process.
Novation: This agreement is often used when a seller has a desire to profit from a renovation on their home, but they do not have the means to do so. The investor will then partner with the seller to renovate the house and share profits from the sale.
Wrap-Dispo: This type of transaction usually occurs after an investor has bought a noncash flowing property and they need to build in their own equity. The investor buys the property subject to the original seller’s loan and then “wraps” that loan into a new loan that they have built their own equity into for an end buyer to purchase the property.
Morby Method: This technique is used when the seller wants a very large down payment (usually 50-70%) but they’re also willing to carry some of the loan. The buyer will obtain a loan for the full purchase price from a traditional or hard money lender, they will also obtain gap funding for the down payment and closing costs from their personal funds or a private lender. The seller then finances the down payment and closing costs (sometimes more) from part of the proceeds they receive from the sale. The seller is then secured with a second position lien (or on the operating agreement for the title entity) for the funds they are owed.
Servicing: A third party company that receives monthly payments from buyers and disperses funds to lenders, taxes, insurance, and any additional obligations.
