Unlock Real Estate Profits with Transaction Funding: A Guide

Real estate wholesaling can seem like a get-rich-quick scheme. But for those who work it properly, you soon see that it takes some business smarts to do right. This can also involve finding solutions like transaction funding.

Many are turning to real estate because they can see how hard it is to buy a home now. At the beginning of October 2022, 30-year fixed-rate mortgage rates hit 7.05 percent. You might be left wondering how transaction funding can help.

Table of Contents:

• What is Transaction Funding?
  • Understanding the Double Close
• How Transactional Funding Works
  • Parties Involved in Transaction Funding
• Why Choose Transactional Funding?
  • Speed in Real Estate Matters
  • Minimizing Risk With Transaction Funding
• Alternatives and Comparisons to Transaction Funding
  • Hard Money Loan Vs Transaction Funding
  • Private Money Loans Compared to Transaction Funding
  • Home Equity Line of Credit(HELOC) in Real Estate
• Real-World Example of Transaction Funding
• FAQs about transaction funding
  • What is a transactional funding?
  • What is an example of a funding transaction?
  • What is a funded transaction?
  • How much does transactional funding cost?
• Conclusion

What is Transaction Funding?

Transaction funding, sometimes referred to as flash funding, is a short-term loan. This type of loan is specifically for real estate investors, generally wholesalers, who need quick capital to close on a property deal.

This process allows the wholesaler to purchase property from a seller and quickly resell it to an end buyer. Because this all occurs often within 24-48 hours it avoids many of the normal longer-term loan processes.

Understanding the Double Close

The “double close” is central to how transactional funding works. It’s a situation where two transactions happen nearly at once.

First, the wholesaler (acting as buyer) buys the property from the original seller. Second, the wholesaler immediately sells that same property to a pre-arranged end buyer.

The core concept in using the word “double” is referencing these two independent deals taking place. Using the phrase, “double close”, implies that things all close on the same day or within the 24-48 hour window. The idea of being, “double” comes with the expectation it closes twice, meaning from Seller A to Buyer B and from Buyer B to buyer C.

How Transactional Funding Works

Picture this: You find a distressed property, recognize its hidden worth and line up an investor keen to renovate it. A traditional loan is way out of the picture due to time delays.

You, as the wholesaler, don’t plan to actually do the property improvements. Instead, you’re the link between a motivated seller and a rehab-focused final buyer.

Here’s a typical real estate transactional funding scenario:

1. You, the wholesaler (Buyer B), investor sign a contract on a price with the homeowner (Seller A).
2. You also have a pre-arranged agreement to sell the property to a final buyer (Buyer C).
3. FundMyDoubleClose.com then wires funds to close to buy the house from seller “A.”
4. You then instantly transfer title to the final buyer for the higher price previously-arranged.
5. You immediately collect the funds and instantly pay us off from the end buyers payment to you.

Parties Involved in Transaction Funding

It’s useful to understand the key roles. There are typically three essential roles in a real estate transactional funding deal.

• The Seller (Party A). This person owns and wants to sell their real estate quick.
• The Wholesaler/Investor (Party B). That is you, working as a middleman or woman.
• The End Buyer (Party C). Usually a rehabber who pays and funds to take possession of the title from you.

You help match these groups up. Your ultimate role connects all parties with the sale, helping solve everyone’s financial objectives.

Why Choose Transactional Funding?

Transaction funding fees vary. The typical closing costs might run anywhere from 2% to 12%.

In contrast, FundMyDoubleClose.com is transparent in fees. Our charges are tiered for double closings, starting at 1% for loans up to $1,000,000, 2% for loans between $1,000,000 and $2,000,000, and 3% for loans between $2,000,000 and $5,000,000.

Our model removes uncertainties. Wholesalers can properly account for the fees involved, while still working their objectives for profit between sales.

Speed in Real Estate Matters

Consider a motivated homeowner wanting a fast closure. Transactional funding include serving you there because its quick access capital versus slow loan approvals.

The current state of real estate with the rising interest rate climate can leave deals in limbo for an undefined amount of time. At the end of September of 2022, new mortgage applications fell by 14.2 percent within just seven days.

With transaction funding, its strength is being fast. So a loan application from days before, suddenly getting canceled might leave some needing your type of offer to help get their property closed fast.

Minimizing Risk With Transaction Funding

When structured well, transaction funding lessens risk for a wholesaler. You have the needed money secured to perform without using your own cash on hand.

It all relies on the “pre-arranged end buyer” and the “quick sale”. There is far less chance for default versus things getting drawn out for multiple days or weeks and risking the transaction going bad and forcing some bad circumstance to take place.

Alternatives and Comparisons to Transaction Funding

Of course, real estate investors may look at options outside of transactional funding. Options you may look to utilize include hard money loans, private loans or the HELOCs.

Let’s explore each a bit more, so you can see why each may not compare well versus transactional funding in real estate when looking at a double-close situation. While they all get to be used when funding a deal, there are important distinctions in certain scenarios.

Hard Money Loan Vs Transaction Funding

A hard money loan is offered by a private source secured on a hard asset. They typically focus more on asset value, but are often quicker than standard traditional home loan products.

Transactional loans are usually even quicker because of the very short nature. A hard money lender usually works with house flippers and has longer repayment times on those property loans.

The following compares a few critical comparison factors when contrasting Transactional Funding versus a Hard Money Loan:

Comparison Point	Transactional Funding	Hard Money Loan
Speed of Sale	Very fast. Hours or Days.	A few days, but sometimes still a few weeks.
Who Usually Uses It	Real Estate Wholesalers	Fix and Flip Rehabbers
Repayment Terms	Same day or in days	Typically Months
Approval Process	End-Buyer Must be Qualified. Limited documents involved	Full application needed with longer document processing and underwriting requirements.
Type of Business Use	Typically used for back to back or same-day funding.	Longer time real estate holdings while working on the property before a sale takes place.

Private Money Loans Compared to Transaction Funding

Private money lenders come from personal sources not linked to typical loan businesses. It could be friends or relatives offering quick financial options to buy something.

While they can be fast, terms can also vary between people and they often times need extra assurance for larger funds they personally may not even possess to help facilitate closing real estate sales. It is useful to work with a transactional funding provider for professional deals.

Also it helps a business person remain professional when having their finances taken care of from trusted third party professional financial solutions versus the idea of borrowing things from loved ones and personal friends and blending personal relationships with professional deals.

Home Equity Line of Credit(HELOC) in Real Estate

A HELOC works using home equity for getting cash, offering lower rates, similar to normal mortgage structures. If someone lacks real estate, though, it might not work to fund a house deal.

They can be quick. But again there are longer underwriting, loan approvals, and documentation versus transacting funding’s purpose.

Real-World Example of Transaction Funding

Here is how it might really work.

1. A homeowner needs cash and needs it fast and looks for investors versus traditional agents.
2. The homeowner finds a real estate wholesaler, that is you. You decide a purchase amount of $300,000 would get the deal signed, knowing another person interested in flipping homes already plans on purchasing it for $325,000.
3. You get a deal signed for $300,000 and instantly resell it for the $325,000, so estate transactional funding could serve your needs perfectly here with your quick time window before your end buyer would need things closed.
4. Based on the deal you might walk away with almost all that net spread between prices when the sales are instantly completed and recorded as a same day close and a win for all parties involved.

Consider the advantages: a fast-moving housing market sees homes as assets, changing hands to create instant financial possibilities and wins for all. According to data provider Attom, in the third quarter of 2021, 94,766 single-family houses and condominiums in the United States were flipped.

FAQs about transaction funding

What is a transactional funding?

Transactional funding in real estate helps in double-closing situations. Transactional lenders functions as short-term loans to let investors or wholesalers facilitate fast purchases and fast resales.

What is an example of a funding transaction?

An example is an investor who buys from a seller at one price and sells immediately to a new buyer at a new price, pocketing a profit in the process. A transactional loan acts as a rapid, interim financing step.

What is a funded transaction?

A funded transaction takes place when money gets given to complete something, like buying real estate. Once there are clear and transparent money sources, there is assurance funds are ready to finish things out successfully.

The lender provide the funding.

How much does transactional funding cost?

Transactional funding cost vary based on different factors like lender’s fees, time constraints, or total deal amounts. It is important to look for clearly disclosed fees as fees that range wildly would likely be more confusing to manage or budget.

You want to access capital with minimal costs.

Conclusion

Real estate requires you see opportunities before others see those same advantages. Fast-changing property values mean investors need quick options that let them be flexible and remain business savvy in their planning and objectives.

The entire process should not require credit checks.

This is one key way how and where transaction funding helps provide those answers for a growing marketplace, working between the sellers, real estate investors, rehabbers, and final title holders who ultimately plan on living in a residence long-term versus using a purchase for instant investment objectives.