Transactional Funding Definition: A Guide for Real Estate Investors

You’re a real estate wholesaler, and you’ve identified a motivated seller. Even better, you have a buyer ready to purchase. It almost seems too good to be true, and it might be, as you could be missing a crucial component.

You’re likely pondering how to proceed without having the capital. That is when understanding the transactional funding definition is crucial.

A concise transactional funding definition is this: it is an extremely short-term loan used for quick real estate deals, often for double closings. It helps bridge the financial gap to buy a property and quickly flip it, but it’s important to know the specific requirements involved.

Table of Contents:

• What Is Transactional Funding in Real Estate?
  • How Transactional Funding Works
• Why Use Transactional Funding?
  • Double Closings
  • Who Provides Transactional Funding?
• Real-World Example
  • How Much Does Transactional Funding Cost
  • Things to Consider for this Process
• What To Expect When Getting Transactional Funding
  • Beyond the Basics: Diligence
• FAQs about transactional funding definition
  • What is the meaning of transactional funding?
  • What does it mean when a real estate transaction is funded?
  • What is the fee for transactional funding?
  • Is transactional lending legit?
• Conclusion

What Is Transactional Funding in Real Estate?

Transactional funding differs significantly from a conventional mortgage or other hard money loans. The repayment of this type of financing occurs rapidly, usually within days, or even hours.

According to Morgan Stanley, nearly 77% of millionaire investors depend on real estate. Transactional funding offers you a starting point in investing by utilizing “Other People’s Money” (OPM).

Average sales prices are soaring, as reported by the Federal Reserve Economic Data, highlighting transactional funding as a useful tool.

How Transactional Funding Works

Consider it a temporary financial bridge. It swiftly moves you from buying from the original seller (point A) to selling to your buyer (point B).

This process doesn’t require you to risk personal savings. The loan is settled almost immediately using the end buyer’s payment.

Key components to remember include:

• An end buyer is essential.
• An investor requires a contract with a seller to sell below market value.
• A contract must show the buyer will purchase at a higher price than the initial contract with the investor.

Why Use Transactional Funding?

The primary advantage of transactional funding is its speed. In the fast-moving world of real estate deals, securing funds quickly is critical.

However, it often comes with a higher cost. RETipster.com notes that fees can range from 2% to 12% of the transactional loan amount.

These expenses can accumulate quickly. This is determined by how efficiently you manage the process.

It also benefits the end buyer. They can obtain the real estate property more rapidly due to your swift action.

Double Closings

This type of funding is frequently used in double closings. Many people may think of this when they ask about a transactional funding double close.

This occurs when you buy a property and resell it almost instantly, sometimes on the same day. Unlike traditional house flipping, you never actually intend to own it.

Who Provides Transactional Funding?

Typically, it’s not traditional banks that offer these loans. Instead, you’ll turn to private money lenders or hard money lenders like FundMyDoubleClose.com, who are experts in quick transactions.

The National Association of Realtors offers resources on compliance, a daily concern for these lenders. Post-2008 housing crisis regulations, designed to safeguard all parties involved, remain in effect.

Real-World Example

Suppose you find a fixer-upper that will be worth $300,000 after renovations. A seller is eager to sell it quickly for $200,000, and you locate a buyer willing to pay $275,000, expecting to do some minor work.

You secure [transactional funding](https://fundmydoubleclose.com/transactional-funding-texas/) of $200,000, buy the property from the seller, and immediately sell it to your buyer for $275,000. Your gross profit stands at $75,000.

However, fees impact this profit. If fees total $10,000 (5% is typical), your net profit becomes $65,000. That is not bad for taking minimal risk.

How Much Does Transactional Funding Cost

As previously mentioned, costs vary significantly based on the lender and transaction specifics. Expect fees around 2% to 12% of the loan, along with possible daily charges.

Consider lenders such as FundMyDoubleClose.com, with fees structured as follows:

Loan Amount Range ($)	Rate	Time For Funds	Notes
Up to 1,000,000	1% (Minimum Fee $1,000)	Same day
1,000,000- 2,000,000	2%	Several Business Days	Closing is required with their Attorney
2,000,000-5,000,000	3%	Multiple Weeks	Closing is required with their Attorney
All Amounts	0.25% per day after time window is missed	Additional fees may apply to other transactions too

Things to Consider for this Process

Some transactional lenders may also evaluate the standard “5 C’s of Credit”, not solely relying on the end buyer’s ability to cover the loan.

The “5 C’s of Credit” are:

• Character
• Capacity
• Capital
• Collateral
• Conditions

Lenders might intervene if your deal with the end-buyer fails. This can lead to a forced refinance, or the funding lender could take over and flip or wholesale the property to other borrowers.

What To Expect When Getting Transactional Funding

Several aspects of this procedure might seem difficult. Here is an outline of the expectations for this process:

1. Locate an investor or seller aiming to sell property below market value for a swift cash sale.
2. Negotiate terms and finalize a contract.
3. As the wholesaler, identify a buyer willing to pay slightly more than the price you secured in the previous contract.
4. Formalize a contract with the new end buyer that you, as the wholesaler, have identified.
5. Submit documentation and paperwork for both property purchase agreements to an expert transactional lender, who will assess and either approve or reject the application.
6. Upon acceptance, receive funding to complete the purchase.
7. Execute the transactions of buying from your seller and reselling.
8. Receive your earnings after repaying the lender; the remaining amount represents your profit from the completed deal.

Beyond the Basics: Diligence

Certain transactional lenders may request desktop valuations and interior and exterior photos. This helps indicate the transaction’s viability isn’t entirely dependent on the buyer’s financial readiness.

Whether you’re new to real estate or experienced, being prepared is important before diving into any real estate investments, especially those involving funding. The rapid nature and potential dangers of this approach might feel overwhelming to anyone who is not prepared, despite the numerous advantages.

It is different from traditional financing like a 30-year mortgage.

FAQs about transactional funding definition

What is the meaning of transactional funding?

It involves obtaining short-term loans for real estate deals, distinct from conventional long-term loans. These loans are typically repaid swiftly.

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

It means that the buyer has secured the necessary funds. Typically, the money lender is someone that specializes in short term real estate deals.

What is the fee for transactional funding?

The fee varies based on several factors. It is important to look for lenders that offer either set prices or charge a small percentage.

Is transactional lending legit?

Yes, it is. If the procedure and materials weren’t mentioned online, you might not have known about this phrase.

Conclusion

Transactional funding offers a way for real estate investors to leverage deals requiring immediate action. BiggerPockets and other sources share numerous success stories of investors that use this funding.

However, caution is advised. Even seasoned professionals like The Real Estate Guys emphasize this.

A clear grasp of the costs, the short timeframe, and securing a confirmed buyer are essential. Understanding the definition of transactional funding is critical as it can lead to significant gains, but it requires diligent effort and strategic planning.