Transactional Funder: Your Key to Swift Real Estate Deals

Real estate wholesalers often find themselves in a tricky spot. You’ve found a motivated seller, negotiated a great price, and have a buyer lined up, but you’re short on the cash needed to close the initial purchase. This is where a transactional funder becomes an important option, offering a lifeline to bridge the financial gap.

Traditional financing routes might be too slow, and using your own funds could tie up needed capital or introduce unnecessary risk. Because the closing dates must happen very soon, many are resorting to transactional funding, but there’s things you might not even be thinking about.

Table of Contents:

• What Exactly is a Transactional Funder?
  • The Speed of Transactional Funding
• How Transactional Funding Works in Practice
  • Key Players in a Transactional Funding Deal
• Cost of Transactional Funding
  • Factors Affecting the Cost of Transactional Funds
• Eligibility and Lender Considerations
  • Finding the Right Transactional Funder
• Beyond Double Closings: Other Uses for Transactional Funding
  • Real-Life Example: A Successful Transactional Funding Deal
• The Risks of Transactional Funding
• FAQs about transactional funder
  • What is a transactional funding?
  • What is a funded transaction?
  • Is transactional lending legit?
  • What does it mean when a real estate transaction is funded?
• Conclusion

What Exactly is a Transactional Funder?

A transactional funder provides short-term loans specifically designed for real estate wholesalers and estate investors involved in double closings or back-to-back transactions. These arrangements work if a real estate wholesaler finds someone wanting to sell their property quickly and someone that wants to buy a piece of property very quickly. The transactional funder comes into play to close the deal between all 3 parties.

These loans cover the purchase price of a property, allowing the investor (Party B) to buy from the seller (Party A) and quickly resell to an end buyer (Party C). These funding deals move faster than standard home property loans do right now.

As an example, in early October 2022, 30-year fixed-rate mortgage rates reached over 7 percent, driving down mortgage applications.

The Speed of Transactional Funding

Traditional loans can take weeks, even months, to get approval and complete funding. Transactional funding, on the other hand, is designed for speed.

Companies like Equity Max pride themselves on offering 100% financing and processing these loans in as little as one day. This rapid turnaround is possible because these are “flash funding” models focused on facilitating a quick, profitable transaction for all parties.

How Transactional Funding Works in Practice

The process seems simple, but that’s because we’re looking from the outside in; there is a method to the process. You, as the investor or wholesaler, identify a property with a motivated seller (Party A) and secure a contract.

You simultaneously find an end buyer (Party C) willing to purchase the property at a higher price. The transactional funder steps in to give the funds for the A-to-B transaction. Once you own the property, you immediately sell property to Party C, repaying the loan and keeping the profit.

Key Players in a Transactional Funding Deal

There are always at least three central figures to making one of these deals a success. Here are the primary participants, including the roles that they play, to help complete this 3-way agreement:

• Motivated Seller (Party A): The individual or entity looking to sell their property quickly, often below market value.
• Investor/Wholesaler (Party B): You, the facilitator, connecting the seller and the end buyer.
• End Buyer (Party C): An investor or individual ready to purchase the property from you immediately after you acquire it.
• Transactional Funder: The organization offering short-term lending.

Cost of Transactional Funding

This speed and convenience do come at a cost. Transactional funding fees typically range from 2% to 12% of the loan amount.

It’s vital to factor these fees into your profit calculations. Because fees are included in these types of agreements, you’ll need to figure them into your budgeting.

Factors Affecting the Cost of Transactional Funds

Several components come into play and sway the transactional lending in different directions. Below is a table that helps illustrate what could potentially make a cost of a loan higher or lower:

Factor	Impact on Cost
Loan Amount	Higher loan amounts might have lower percentage fees, but the total fee will be higher.
Lender’s Risk Assessment	If the deal is perceived as riskier, fees may be higher.
Speed of Funding	Faster funding might come with premium fees.
Market Conditions	The overall cost can fluctuate with lending rates.

Eligibility and Lender Considerations

A transactional funding lender *can* evaluate a borrower based on the 5 C’s of Credit. However, the approval often hinges more on the end buyer’s commitment and the property’s potential.

Lenders want to see a solid contract with the end buyer. They may also conduct basic due diligence on the property, which can includes a desktop valuation.

Lenders look at interior and exterior photos to further access their investment. Transactional lenders often don’t require extensive paperwork or perfect credit score.

Finding the Right Transactional Funder

Research and referrals can be helpful tools in building business relationships. Some lenders focus on specific regions or property types.

Washington Capital Partners stands out. Paces Funding quickly funds wholesale contracts. Jet Lending is a national funding solution. Tidal Loans is a valid consideration for those with lower credit scores. Coastal Capital Funding serves customers in Virginia and has three decades worth of experience.

Some lenders, like Washington Capital Partners will even help locate buyers. Partnering with Off-Market Deals HQ.is an example of finding buyers.

Beyond Double Closings: Other Uses for Transactional Funding

While double closings are the most common use, transactional funding isn’t for that specific area only. Some circumstances exist in this type of method for investors.

Some lenders lender provide funding for earnest money deposits (EMDs). There are times when it even works for seller carry transactions. But remember, these details could all depend on the specific provider.

Real-Life Example: A Successful Transactional Funding Deal

Let’s say you find a property being sold for $200,000. You line up an end-buyer at $250,000, anticipating $10,000 in various fees (including transactional funding cost). Because home-flipping is increasing,according to ATTOM Data Solutions, securing deals requires immediate funding.

With funding secured, you close both deals, netting a $40,000 profit. While impressive numbers happen regularly, there is a realistic mindset that all investors must adapt to.

Not every home is going to see an increase like the example we just shared, some will not profit.

The Risks of Transactional Funding

There is some built-in risk with transactional funding to keep in mind. The biggest risk is relying on the end buyer.

If their financing falls through, you could be stuck with a property you can’t afford and a loan you must repay. It is key to make sure there are documents to support any and all funding.

Confirming details will also reduce stress while moving through each closing of this transaction. Documenting everything should reduce concerns, in this step of investing, because of so much invested up to this point.

FAQs about transactional funder

What is a transactional funding?

Transactional funding involves the short-term lending practice designed to have parties A, B, and C all come out winners. Party A wants to sell their home.

Party B (often a wholesaler) seeks funding through transactional funding and arranges an immediate purchase from A while reselling to Party C (an end buyer). In essence, the funding helps investors needing instant capital.

What is a funded transaction?

A funded transaction in real estate happens once money is released for property purchasing. This can involve a buyer’s money clearing an escrow account or, like in transactional funding, the brief use of cash loans allowing sales completion.

Is transactional lending legit?

Absolutely. Transactional lenders charge fees for their services, but the process is entirely legal and widely used in the real estate wholesaling industry. When working correctly, it enables seamless real estate transactions between wholesalers and end buyers, reducing the need for larger long-term capital.

Always vet any specific transactional lenders thoroughly to assure financial security and trustworthiness. Confirm that the transactional lenders meet all legal criteria for lending in your state.

What does it mean when a real estate transaction is funded?

If a transaction receives financial “funding”, this suggests money has changed hands making it complete. Escrow holding funds confirm the purchasing aspect occurs while the lender releasing cash suggests sale readiness.

Essentially this allows physical properties to transfer securely. Many transactional lenders will send written confirmation, sometimes called a POF letter or funds letter, to the seller to show that the investor buys the ability to close.

Conclusion

A transactional funder provides a niche solution for real estate investors needing rapid access to capital for short-term deals. While there are some downsides like fees, transactional funder companies could become a strong consideration if a real estate investor needs fast money.

Understanding how this works before borrowing helps. By evaluating the lending practice before choosing, the risk will reduce dramatically for the investor.