Cutting Costs on Transactional Funding Fees for Wholesalers

You’re a real estate wholesaler, and you’ve found a great deal. The only problem is, you are short on capital, but have a buyer lined up. Transactional funding fees might be something you are wondering about.

It’s a common situation for a real estate investor. Transactional funding can provide a solution, bridging the gap between your purchase from the seller (the A-B transaction) and the sale to your end buyer (the B-C contract).

But what are transactional funding fees, and how do they impact your profit?

Table of Contents:

• Understanding Transactional Funding
• Breaking Down Transactional Funding Fees
  • Common Fee Structures
  • Hidden Fees and What to Watch Out For
• Factors That Influence Transactional Funding Fees
  • Loan Amount and Term Length
  • Risk Assessment
• Ways to Minimize Your Transactional Funding Costs
  • Shop Around
  • Negotiate
  • Strong B-C Transaction
• Example of Fees in a Transactional Funding Deal
• Alternatives to Transactional Funding
• FAQs about transactional funding fees
  • What is the fee for transactional funding?
  • What is an example of transactional funding?
  • What is a transactional financing?
  • What are the requirements for transactional funding?
• Conclusion

Understanding Transactional Funding

Transactional funding is a short-term loan. It lets real estate investors and estate investors buy properties without using their own money.

It’s also known as flash funding. The transactional lender provides the funds for the initial purchase (A-B).

Then, the proceeds from the resale (B-C) pay off the funding loan, typically within a few days, or even the same day. It’s a powerful tool for those capitalizing on quick real estate deals, because real estate remains a favorite of investors.

Breaking Down Transactional Funding Fees

Now, we address the core thing that wholesalers care most about: transactional funding fees. The speed and convenience of transactional funding isn’t free.

Transactional funding lenders need compensation for providing quick access to capital. The costs vary but commonly involve a percentage of the funding loan amount.

The perception of the deals risks also vary the money loan amounts.

Common Fee Structures

Funding fees are typically between 2% and 12% of the loan amount. This percentage may change.

Some funding lenders use tiered pricing. The percentage decreases as the loan amount increases, but it could have minimum fees no matter how small your money loan amount is.

So that needs accounting for as part of your assessment of profit.

Hidden Fees and What to Watch Out For

A transactional funding lender has every right to check out a borrower. This can involve doing a credit check and confirming the asset’s worth.

Many “junk fees” are unnecessary costs charged by funding lenders. Be careful for those additional fees.

Here’s a few of the typical costs involved with transactional funding:

• Funding Fee: A percentage of the funded amount. For example, 1% of a $100,000 loan would be $1,000.
• Wire Fees: Transactional lenders pass on bank wire transfer costs.
• Entry Fees Charged by the transactional lender which might be non refundable if a deal doesn’t close.
• Cancellation fees Charged by lenders if a deal doesn’t go through even if they do not fund any capital.
• Processing Fees Fees, maybe by another name, charged either on the “a to b” deal or the “b to c” transaction.

Be sure you know, going in, exactly what to expect. Review fee details with a loan officer or the account team prior to accepting and using any [transactional funding](https://fundmydoubleclose.com/transactional-funding/).

Factors That Influence Transactional Funding Fees

Several factors can influence the funding fees charged. The main influence will likely be on risk.

Here’s some examples.

Loan Amount and Term Length

Larger money loans sometimes come with lower percentage fees. Shorter loan terms, such as same-day funding, could have different fee structures compared to term loan extending a few days.

It is typical that transactional funding loans vary according to risks involved. Other conditions might cause variance.

Risk Assessment

The strength of the B-C transaction matters a lot. Transactional lenders might do some fundamental research on the property, such as doing a desktop valuation and reviewing pictures of the inside and outside.

Funding lenders require proof of a solid end buyer with ready funds. Riskier deals might get higher funding fees because of greater uncertainty.

Ways to Minimize Your Transactional Funding Costs

Though these costs are unavoidable, it is not impossible to minimize transactional funding fees. Doing so helps protect your potential profits.

There are a few things you can look at.

Shop Around

Don’t take the first offer you find. It’s not always a race.

Contact multiple transactional funding lenders and compare their fee structures, and read all the fine print before making any kind of decisions. Be certain the money lender is dependable, as slow is smooth and smooth is fast in business.

Factor that as part of the lender comparison and selection. Consider if your business plan permits time delays.

Negotiate

Don’t be afraid to bargain, because everything is negotiable. A strong track record and a ready end buyer give you bargaining power.

Try to negotiate a reduced rate or have specific costs eliminated.

Strong B-C Transaction

Make sure your deal with the end buyer is really strong. Proof of an end buyer is necessary, but credit is not typically checked.

Having pre-approval and a substantial deposit shows commitment, thus potentially lowering risk and, potentially, funding fees.

Example of Fees in a Transactional Funding Deal

You get a property under contract for $200,000 (the A-B transaction). You also have a contract to sell it to your end buyer for $250,000 (the B-C contract).

You secure [transactional funding](https://fundmydoubleclose.com/transactional-funding-double-close/) to complete your deal. Let’s breakdown a hypothetical transactional fee schedule using a HTML table:

Fee Type	Description	Example Cost
Funding Fee	1.5% of the loan amount ($200,000)	$3,000
Wire Fee	Cost of transferring funds	$50
Processing Fee	Fee charged by lender	$500
Total Estimated Fees	$3,550

In this situation, the estimated transactional funding cost are around $3,550. Your profit on the deal, after accounting for these funding fees, would be $46,450 ($50,000 gross profit – $3,550 fees).

So, its worth reviewing numbers prior to beginning the project.

Alternatives to Transactional Funding

Maybe, [transactional funding](https://www.fortunebuilders.com/transactional-funding/) might not fit with your investment plan. Several choices do exist.

Hard money loans or private money loans are available choices, because both can give the quick cash needed to jump on chances. Double closings also require funds for relatively quick deals.

Joint endeavors, where expenses and income are divided, also become an choice.

FAQs about transactional funding fees

What is the fee for transactional funding?

Transactional funding fees typically involve a percentage of the money loan. Those amounts normally go between 2% and 12%.

It also will depend on the loan amount and its risk.

What is an example of transactional funding?

A real estate wholesaler locates a property. They contract to purchase it for $150,000, with a same-day contract to sell it for $180,000 to a definite end buyer.

Transactional funding offers the $150,000 brief loan, letting the wholesaler acquire the property and quickly re-sell it for a $30,000 revenue, less any of those loan fees.

What is a transactional financing?

Transactional financing is short-term money, used a lot of the time in property deals like double closings or wholesale deals. It involves having a known “end buyer”.

That borrower gets quick money to buy and then promptly re-sell, the asset, utilizing proceeds to meet short term payback loan amounts.

What are the requirements for transactional funding?

While criteria differ, generally you will want an end buyer deal showing their funds. You also need an agreed-upon timeframe.

Most transactional lenders provide loans typically within a day.

Conclusion

Transactional funding provides rapid, short-term financing. Real estate wholesalers and estate wholesalers gain advantages for getting good deals done.

This only occurs though when a prepared, able end-buyer contract is known. Understanding those transactional funding fees, such as percentage charges and other possible charges, enables one to assess if any transaction makes good sense.

It’s imperative you weigh all risks against opportunity.