As a real estate investor, you’re always on the lookout for that next deal. But what happens when you find a great property, but you don’t have the immediate cash available? This is where the best transaction funding comes in, offering a potential solution, but it’s understandable to question its reliability, especially if you’re new to this type of lending.
Transactional funding can be a lifeline, providing the necessary funds to complete a deal. Knowing the details of the best transaction funding makes it better. Let’s go over it together.
Table of Contents:
- What Exactly is Transactional Funding?
- How Transactional Funding Works Step-by-Step
- Common Transactional Funding Uses for Real Estate Investors
- Choosing the Best Transactional Funding Lender
- Pros and Cons of Transactional Funding
- Alternatives to Transactional Funding
- The Risk: What if the B-C Deal Falls Through?
- FAQs about best transaction funding
- Conclusion
What Exactly is Transactional Funding?
Transactional funding, sometimes called “flash cash” or “same-day funding,” is a short-term loan. It’s specifically used in real estate to fund “double closings” or “back-to-back closings.” Real estate wholesalers frequently use it.
Think of a scenario where you, as an investor (Party B), have a contract to buy a property from a seller (Party A) and, simultaneously, have a contract to sell it to a buyer (Party C). Transactional funding provides the cash you need to complete the A-B transaction. This is then immediately repaid when the B-C transaction closes, often on the same day.
This type of funding solves a critical problem. You no longer have to pass up lucrative opportunities because of a temporary lack of capital.
How Transactional Funding Works Step-by-Step
Let’s walk through this a step at a time.
- Finding the Deal: You find a property (residential or commercial) that you can buy at a discount. This could be from a motivated seller, through a short sale, or at an auction.
- Finding the Buyer: Before or shortly after getting the property under contract, you find an end-buyer. The buyer is willing to purchase it at a higher price, netting you a profit.
- Applying for Funding: Once both contracts are in place (A-B and B-C), you apply for a transactional loan. You would do this by sharing those contracts and information on the closing costs and details.
- The Closings: Ideally, both transactions close simultaneously or within a very short period. The transactional lender funds your purchase (A-B), and the funds from your sale (B-C) immediately pay back the transactional loan, plus fees.
There is some timing and precision that matters a great deal. The closing agent helps to keep things running smoothly.
Common Transactional Funding Uses for Real Estate Investors
You might be using this tool if you are in a couple specific places, like HUD properties.
Wholesaling
This is the most common use. Wholesalers find properties, secure a buyer, and use transactional funding to complete the deal and take a profit. It requires little of the wholesaler’s own capital.
Double Closings
These are required when the seller (often a bank in a foreclosure situation) won’t allow assignment of the contract. Transactional funding facilitates the double close with speed, moving the real estate deals forward.
Wholetailing
This is not purely “wholetailing” but there is a similarity. These are short-term investments where funding completes deals rapidly.
Transactional lenders can be very accommodating when you factor those areas. Understanding those details makes sure everything runs well.
Choosing the Best Transactional Funding Lender
Not all transactional funders are created equal. Finding a private lender that provides more help for investors is not something that happens often, but it’s a worthwhile thing to prioritize.
Here’s what sets top lenders apart.
Speed
Speed is in their name, for example companies like Equity Max can process and underwrite loans in a single day. Others, like Paces Funding, can quickly process loans. This is because they use their own funds instead of relying on external investors.
So, speed of funding matters greatly.
Experience Matters
Look for lenders with deep experience in real estate investing, as they’ll understand the deals and possible challenges. For instance, Coastal Capital Funding brings over thirty years of experience to the table.
This also applies when the company is reviewing HUD properties.
Rates and Fees
While transactional funding is short-term, fees add up. Fees range from 2% all the way up to 12%, so costs really do add up fast.
Here is a table with some examples.
| Loan Amount | Funding Time | Rate | Rate Per Day |
|---|---|---|---|
| Up to $1,000,000 | Same day possible | 1% (min. $1,000 fee) | $0.25% Per Day |
| $1,000,000 – $2,000,000 | Multiple business days | 2% | $0.25% Per Day |
| $2,000,000 – $5,000,000 | Multiple weeks | 3% | $0.25% Per Day |
Flexibility is a factor
Some lenders have very rigid requirements. Find lenders that can do double closings, and have alternative options for investors that use them for a number of different situations.
Some have logistics issues when they don’t fully understand all of the deal.
Credit Score is often not Important
Some are friendlier to those with credit challenges, such as Tidal Loans.
Other lenders care less about credit.
Reputation
Always do your due diligence. But lenders like, Washington Capital Partners are viewed as the one of the best. Also, Jet Lending is a nationwide private money lender.
So checking the local and nationwide lenders is ideal.
Pros and Cons of Transactional Funding
There are definite upsides and downsides of using transactional funding.
Pros
- Fast access to capital for closing estate deals is key.
- Minimal risk when deals close fast.
- Allows doing deals that contracts don’t allow.
Cons
High Cost. You are paying for the speed and convenience.
Not Long-Term. These are loans with limited funding and is not made for the buy and hold style.
Requires Precision. There is pressure when you have closing timing.
If transactional funding doesn’t work with what you are doing, consider alternative ideas.
Alternatives to Transactional Funding
Depending on the deal, the investor, and timing there are other strategies out there.
Hard Money Loans
These are asset-based loans, typically used for fix-and-flips. They are more expensive than traditional financing but faster and less reliant on credit scores.
But hard money loan requirements have become more difficult, although some have increased back to the original 70%.
Private Money Loans
These can come from individuals or companies, offering potentially more flexible terms than hard money, although rates might vary. It helps that you get this kind of funding directly.
Private Lenders might not be “hard” money lenders, but lending rates could increase if deals are lucrative for them.
Seller Carry
The seller finances a portion of the purchase price. The rates would align similarly with that of double closing.
The Risk: What if the B-C Deal Falls Through?
This is the *major* concern with transactional funding, and it is what is being talked about on investor forums. If your buyer (Party C) fails to close, you’re on the hook for repaying the transactional loan.
Here are things you should do before going through a transaction.
Have Backup Buyers
Don’t rely on just one potential buyer. The ideal scenario is lining up several buyers beforehand to add the security you need when the deal moves ahead.
Earnest Money Deposit (EMD) Loans
These are small, short-term loans specifically used to help real estate investors fund the earnest money deposit (EMD) required when putting a property under contract.
Here are EMD loan prices.
| EMD Amount | Fee |
|---|---|
| Up to $5,000 | $1,500 |
| $5,001 – $15,000 | $2,500 |
| $15,001 – $25,000 | $5,000 |
| $25,001 – $50,000 | $12,500 |
| $50,001 – $75,000 | $20,000 |
| $75,001 – $100,000 | $27,500 |
Make sure to collect substantial non-refundable earnest money from your buyer. You also have to provide a 10% upfront deposit on EMD funds that credits your closing costs.
The deal might not seem appealing until you analyze what kind of money you have to risk as a real estate entrepreneur.
FAQs about best transaction funding
How to get proof of funds for free?
Proof of funds usually comes from the transactional lender to show that financing is available to buy. Getting them from private money lenders or showing a verified bank account could offer the same proof, with less documentation that you provide with other options.
You also won’t have any concerns that the company acted improperly.
How do I get transactional funding?
Getting it depends on identifying lenders, having your deal structure together (contracts.), and having an end-buyer lined up. Start applying once all of this is organized.
Make sure that the contracts do not have an issue if you won a HUD bid.
What is a transactional financing?
This financing option is when you have access to short-term loans to facilitate property “flips.” But more formally, where an investor buys and resells a property very rapidly.
What is an example of transactional funding?
Imagine a wholesaler finds a great off-market deal, contracts with a seller at $200,000, and simultaneously lines up a buyer at $230,000. The transactional lender gets fees after the $30,000, and the wholesaler gets whatever remains.
Conclusion
Finding the best transaction funding means doing the homework upfront. This helps an investor secure better terms and know the lender, looking at factors like the track record the company and individuals like, Steven Kupecz. Although rates matter, real estate entrepreneurs should focus on closing speed with the lender, total costs, and a track record that they provide with testimonials.
Checking those reviews, there is confirmation if the funding works. Also you can see if any customer had an excellent customer experience.
This way a real estate investors can start going in that new area they found a seller. It is great when you can see in reviews that there was a wonderfully quick response and those services are praised for getting things to funding completed stage.
At FundMyDoubleClose.com, we specialize in transactional lending solutions tailored for real estate investors and wholesalers. Whether you're interested in double closings, earnest money deposit (EMD) loans, or seller carry transactions, our team is here to assist you.
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