MICRO FUNDING:  Once an offer to purchase a property has been accepted, Initiation (Micro) funding can be extended to the buyer from any private source. These micro loans are typically small and are used for incidental expenses such as application fees, appraisals, inspections, travel, etc. Since the loans amounts are typically very low, interest for these extensions may be very high relatively speaking. Micro loans can be rewarding if they are deployed in well structured transactions that are set up to close quickly.  Micro funding amount typically starts at $2,500. Returns on this funding ranges from 50-100% depending on circumstances. Funds typically re-paid on the front end of our acquisition transactions. 

EMD FUNDING:   Earnest money deposit (EMD) is the initial money put up for the purchase of a property.   This money is usually placed into title or escrow and is applied to total purchase price of a property acquisition. 

We may facilitate EMD loans for transactions that meet our criteria. And we may utilize EMD extensions through our network of resources whenever warranted. In this scenario we will typically make sure a transaction is in its latter stages so that we can move the money in and back to our funding Partners quickly. We will not request one of these loans if there appears to be any problem with closing.  

BRIDGE FUNDING:  A Bridge loan is short-term loan or financing used until a person or company can secure permanent financing or pays off an existing obligation.  

GAP FUNDING:  Gap funding for real estate investors closes the “gap” left between what a hard money lender covers and what your investing project costs. 

A typical hard money loan only covers 70% to 80% of the purchase price of a property. That leaves you to come up with the other 20% to 30% as a down payment, plus closing costs. And while most hard money lenders do provide 100% of the renovation costs, they require you to put up the money for each phase of repairs first, then they reimburse you in draws. 

In other words, you need tens of thousands of your own money to flip a house or do a BRRR deal—unless you borrow from a second source for real estate gap funding. 

How to Use Real Estate Gap Funding

Theoretically, you can use gap funding to flip a house with no money down. But its uses go beyond trying to invest with nothing but other people’s money.

Sometimes investors run over budget on the renovations of a flip and need a quick influx of cash. Alternatively, a renovation project may take longer than expected, pinching them on carrying costs and risking foreclosure. 

In other cases, investors have most of their money tied up in another rehab, but find an outstanding deal too good to pass up. 

Use leverage in real estate carefully. The more leverage you use in a real estate deal, the higher your risk. But sometimes, leverage can help you earn more money by salvaging a deal you’d otherwise miss out on.

                                                        Sources of Real Estate Gap Funding

There are many potential sources of gap funding for investors. While not an exhaustive list, consider these options for real estate gap funding.

Gap Lenders

Some lenders specialize in gap funding for real estate investors. Because they take a second lien position behind the hard money loan, and because they’re lending a high loan-to-value ratio (LTV), they take on enormous risk. This means they charge accordingly, with high-interest rates and fees. Some gap funding lenders also require a percentage of your profits from the deal to make the loan worth their while.