REAL ESTATE CORNER SIMULTANEOUS CLOSINGS

You don't have to stretch the envelope to achieve creative solutions for real estate financing situations. An abundance of tried and true strategies are available. Most of the more successful arrangements involve the creation, exchange, and/or sale of private mortgages somewhere in the mix. Realtors with CCIM training, and agents specializing in exchanges, have been using these deal-making weapons for decades.

Being aware of these old deal-making techniques, and using them daily in your real estate activities will increase the volume of your sales, and build your referral base. The end result - more profits!

Simultaneous closings are powerful tools that offer a great deal of flexibility and a notable advantage to the serious dealsmith. They can facilitate closings where traditional financing alternatives are not available. Using this maneuver, the Realtor creates an owner carryback purchase mortgage, while simultaneously working with a note broker to sell the note to an investor at the closing of the purchase transaction.

Several variations of the simultaneous closing technique have been used over the years. However, fueled by an upsurge in the development of mixed-use office/light industrial office parks, R & D facilities, and ministorage complexes throughout the country, there has been an explosion in simultaneous closings during the past five years.

The problem in the past was how to finance all the potential sales. A number of these projects are planned-unit developments, being built with the idea that small businesses can own their own spaces. But, over the past decade, limited options, onerous terms, and stringent qualifying criteria have made it difficult to obtain palatable long-term commercial real estate financing through traditional channels, particularly for loans under $500,000.

The Solution

Simultaneous closings! More real estate agents are becoming familiar with this approach and aware of the advantages that such expanded thinking brings to their closing ratios. This deal-making technique has become a common solution in increasing sales volume for a variety of real property transactions.

Typically, the Seller or his/her Realtor will structure a seller carryback purchase money mortgage. By establishing a relationship with a note broker ahead of time, the agent can gain the basic knowledge necessary for structuring a note that is attractive to a note buyer, while creating a sale that meets both the Seller's and Buyer's needs. Once the Seller and Buyer have agreed to the terms of the note, a note buyer can provide a quote reflecting what s/he would pay for the note after closing.

The paperwork for evaluating a note purchase is similar to underwriting a traditional mortgage. The note broker needs copies of the purchase contract, a completed credit application, income documentation for the Payor, and a current appraisal. It has become common to use a basic credit application form rather than a loan application (1003) form, to ensure that the parties are clear that the note purchase is NOT a loan transaction.

A commitment to purchase the newly created note at closing is then obtained from a note buyer, generally at a discount. From that point, the deal proceeds through escrow. Shortly after closing, the Seller's note is then sold to the investor, and the seller receives the cash in a second closing. In this manner, the Seller is able to get his/her equity much the same as s/he would with a typical financed closing.

Voila! The knowledgeable Realtor just injected new cash into a transaction where traditional financing didn't meet the need, and closed a deal that wouldn't have happened otherwise! Simultaneous closings can be used to fund a wide variety of purchases where a good credit buyer can't qualify for traditional financing.