You’re a real estate wholesaler with a hot property under contract. You’ve found a motivated seller and lined up an end buyer eager to close, this is where transactional funding becomes essential. But the clock is ticking, and you need a way to move fast without tying up your own capital.
This is where transactional funding comes in. It’s a short-term loan option for facilitating quick real estate transactions, like double closings, where you buy and immediately sell a property. This allows real estate investors to move forward with their deals quickly.
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What is Transactional Funding?
Transactional funding, also referred to as flash funding or same-day funding, is useful in specific real estate deals. It is commonly used with double closings or “AB-BC” transactions. This type of funding is ideal for investors looking for quick turnarounds.
It allows estate investors to purchase property without using their own money. The property is then quickly resold to an end buyer. This makes it a critical tool for those involved in the fast-paced world of real estate wholesaling.
How Transactional Funding Works
Think of transactional funding as a financial bridge. It helps you get from acquiring a property to selling it almost immediately.
This funding isn’t designed for long-term holding or rehabbing projects. It’s ideal for situations where the resale happens quickly, often on the same day that you purchase the property. Transactional loans are meant for speed and efficiency.
The process involves key players: the initial seller (A), you, the real estate wholesaler or investor (B), and the end buyer (C). Each has crucial parts to play in this setup. The coordination between these parties is key to a successful transaction.
Who is Involved in Transactional Funding
The process begins with ‘A’, who has real estate that they want to sell. This is often a motivated seller looking for a quick transaction.
You, as the investor or wholesaler (‘B’), purchase the property from “A”. Then, you sell it to ‘C’. This is where the timing and coordination of transactional funding become essential.
Typically, a transactional lender, like FundMyDoubleClose.com, steps in to provide the funds for the A-B transaction. Then ‘C’, the end buyer, provides funds that close the deal. This ensures the entire process flows smoothly and quickly.
Why Use Transactional Funding?
The main benefits of transactional funding are speed and not needing to use personal funds. This allows investors to seize opportunities quickly. With this type of funding, property investors can act fast on deals without long delays.
You don’t have to go through lengthy approval processes, unlike with a hard money loan or other financing options. Transactional funding is designed for speed, with funds often available the same day, if the loan amount is below one million dollars. This makes it ideal for time-sensitive real estate deals.
It also allows you to keep your profits private. In some cases, the buyer won’t have to see your wholesale amount from the A to B transaction. This can be a significant advantage in maintaining a competitive edge.
Transactional Funding Costs
The cost of transactional funding often depends on the loan size. Other specifics of the deal are also factors.
At FundMyDoubleClose.com, rates start at 1% for loans up to $1,000,000, funded as quickly as the same day. They have a $1,000 minimum processing fee to cover various costs, such as documentation.
| Loan Amount | Rate | Funding Time |
|---|---|---|
| Up to $1,000,000 | 1% (minimum fee of $1,000) | As quickly as same day |
| $1,000,000 – $2,000,000 | 2% | Multiple business days |
| $2,000,000 – $5,000,000 | 3% | Multiple weeks |
Transactional lenders may also charge percentage points depending on the size of the deal. You may find some charging an origination fee. Be sure to fully understand any potential upfront fees.
Eligibility for Transactional Funding
Terms may vary among transactional lenders. However, to access capital, you generally need a motivated seller, a solid deal, and an end buyer.
A money lender might assess the borrower using the 5 C’s of Credit. This often includes checking credit and performing a basic valuation.
FundMyDoubleClose.com requires a business entity, such as an LLC. They also ask for written confirmation that funds are available from the end buyer, sometimes provided through a POF letter. These requirements are in place to minimize risks for all parties.
Alternatives and Comparisons
Sometimes, transactional funding might not be the best fit. This often depends on the timing of the real estate purchase or other needs.
Hard money loans, bridge loans, and HELOCs offer alternative financing options. These options provide more time for repayment, but they usually involve leveraging an asset.
The best choice depends on the specifics of the deal, your timeline, and your overall investment goals. Selecting the right type of funding is important for successfully managing your investment plans. A proper real estate purchase depends on having adequate funding.
Real-Life Example
Here’s how a typical transactional funding deal might work. Sarah, a real estate wholesaler, identifies a promising property.
She negotiates a purchase price of $200,000 with the seller, knowing she has an end buyer willing to pay $250,000. To avoid using her own capital, Sarah opts for transactional funding.
With fees at 1-2%, her funding cost might be around $2,000. This leaves her with a substantial profit of $48,000, achieved quickly and without personal financial risk. The use of transactional funding allows for efficient use of capital in online real estate.
FAQs about Transactional Funding
What is Transactional Funding?
Transactional funding is a short-term loan. It enables real estate investors or wholesalers to purchase a property and resell it very quickly, without needing to use their own cash. It’s an ideal solution for facilitating fast-paced deals.
How Much Does Transactional Funding Cost?
Costs vary depending on the lender, the size, and other specifics of the deal. Fees for real estate wholesalers typically range from 1% to 12% of the deal’s value. This fee structure allows for predictable budgeting in real estate deals.
What is an Example of a Funding Transaction?
An example would be when an investor buys a home using transactional funds. Then, they quickly resell the property and repay the loan all within a short time, often the same day. This exemplifies how the financing works in practice.
What are the Three Main Types of Funding?
The three main types of funding are equity financing, debt financing, and grants. Each has its own advantages and is suited to different financial situations. Understanding these options helps investors choose the most appropriate funding method.
Conclusion
Transactional funding has become an essential tool for real estate investors and wholesalers. Its key benefits are speed, minimal need for personal funds, and transparency. These advantages are particularly crucial in today’s dynamic housing market.
While transactional funding real estate does involve risks, such as costs and the need for a quick end-buyer transaction. With careful planning and solid execution, it remains a valuable option. This method helps investors to keep their potential for making smart decisions high.
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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