You’re a real estate wholesaler, and you’ve found the perfect deal. A motivated seller, a ready buyer, and a tidy profit waiting, but there is a gap. That gap, that need for short-term capital to bridge the deal, is where transactional funding for real estate comes in.
This rapid financing method lets investors purchase a property and quickly resell it, often within days or even hours. But, transactional funding for real estate is not the easiest to secure for various reasons. You’ll learn about what it is, how it works, and how to get it when timing is essential.
Table of Contents:
- What Exactly is Transactional Funding?
- How Does Transactional Funding Work in Real Estate?
- Costs and Fees for a Deal
- Who Uses Transactional Funding, and Why?
- Finding a Transactional Funding Lender
- Requirements to be Eligible
- FAQs about transactional funding for real estate
- Conclusion
What Exactly is Transactional Funding?
Transactional funding, sometimes called “flash funding” or “same-day funding,” is a short-term loan. It is used specifically for back-to-back real estate closings, common in wholesaling.
It helps real estate investors avoid the risk of using their own capital. The entire process is meant to be very short-term.
The Double Closing Scenario
In a typical transactional funding scenario, a wholesaler (Investor B) finds a property from a seller (Seller A). That Investor B quickly finds another buyer (Buyer C).
The transactional lender provides the funds for Investor B to buy from Seller A. Immediately after, Investor B sells to Buyer C, repaying the lender almost instantly.
Key Players in a Deal
Several parties exist:
- A money lender giving cash.
- An investor like a real estate wholesaler.
- A seller to give a deal.
- A buyer buying from the wholesaler.
In the best-case scenarios, the whole deal from the original seller to end buyer all takes place within a day or two. You can understand now the timing of things involved with this.
How Does Transactional Funding Work in Real Estate?
The advantage of transactional funding lies in its speed and simplicity. Unlike traditional mortgage loans, there’s minimal red tape involved.
Because the repayment period is short, lenders are less exposed. Some, like Equity Max, even offer 100% financing.
The Mechanics Step-by-Step
The process starts once an investor goes out to secure the real estate. These steps help explain the core process:
- Finding the Deal: An investor (often a wholesaler) identifies a property, usually below market value, with a motivated seller.
- Securing the End Buyer: The investor finds a buyer willing to purchase the property at a higher price. This buyer must be ready to close quickly.
- Applying for Funding: The investor applies for transactional funding, providing the buyer contract with both the seller and the end buyer.
- Funding Approval and Disbursement: The lender, seeing the guaranteed exit strategy, approves and disburses the funds, often the same day.
- The Double Closing: Investor B buys from Seller A using the lender’s funds. Investor B immediately sells to Buyer C.
- Loan Repayment: Investor B repays the transactional lender, typically with proceeds from the sale to Buyer C.
Costs and Fees for a Deal
Transactional funding isn’t free. Transactional lenders charge fees that usually range between 1% and 3% of the loan amount. However, those numbers vary depending on a lot of factors, but those are averages.
For a $200,000 loan, the fee could be between $2,000 and $6,000. There might also be extra closing costs, but that depends on the lender.
Understanding the Costs
It’s crucial to factor these costs into your profit calculations. A deal that looks profitable on paper might become less so when you consider lender fees and any other closing expenses.
Consider creating a basic table as seen below that factors in total profit on a potential sale price, loan fees and net profit:
| Metric | Amount |
|---|---|
| Sale Price To Buyer C | $450,000 |
| Cost to Buy Property from Seller A | $420,000 |
| Loan Amount Needed from Transactional Lender | $420,000 |
| Lender’s Fee (assuming a modest 1.5% for fast funding) | $6,300 |
| Net Profit | $23,700 |
Cost Variations
Rates also vary by state, lender, loan amount, and the speed that money is requested. Companies like, FundMyDoubleClose.com offer competitive rates.
Their offers are as low as 1% for loans up to $1,000,000 with same-day funding. Larger property loans have progressively higher rates and need more processing time. Any loan that takes an escrow longer requires an extra daily rate.
Who Uses Transactional Funding, and Why?
Wholesalers are the primary users of transactional funding. But, it’s also useful for investors who need to close a deal quickly and don’t want to use their own capital.
The Wholesaler’s Advantage
For wholesalers, this type of funding is very appealing. They often deal in securing and turning around properties quickly, acting as middlemen between motivated sellers and end buyers.
Wholesalers can even grow more efficiently by building relationships with people with cash. This helps them leverage it more powerfully without having it in advance.
Beyond Wholesaling: Investor Benefits
It’s not *just* for wholesalers, either. Even investors with capital might use transactional funding.
Consider a scenario: you find a transactional funding deal too good to pass up, but your capital is tied up in other projects. Transactional funding gets you to access those real estate deals.
Finding a Transactional Funding Lender
So, how do you actually find a lender who offers this? One way is by looking online. Use Google Search and check local Real Estate Investment Associations (REIA) meetings, or ask for referrals.
Online Searching
A simple Google search, like “transactional funding + your city”, will yield a list of potential lenders. Read their terms, rates, and reviews.
Networking and Referrals
Ask fellow investors or check the REIA meeting to have leads from real world colleagues. Personal referrals come from first hand sources, often having more experience in the area you seek.
Requirements to be Eligible
Although specific criteria can vary slightly between lenders, generally a few main eligibility requirements will need to met. For many investors it may include these core factors.
Common Requirements
- An End Buyer is one of the more critical factors with the strongest evidence that funds from end buyer exist to finalize the deal with all involved parties.
- Being a business entity. A person might get more options when registering an LLC for real estate.
Many companies, although allowed, do not check many of the normal things companies check when applying for funds. They won’t consider standard checks as critical to securing loans with their systems.
Lender Requirements
A transactional funding lender is entitled to consider things like an applicants credit. However, they rely more on other facts as their core determination when approving them for funding.
While transactional lenders *can* consider the standard 5 C’s of Credit, they often don’t. Lenders will sometimes look into pictures of the real estate to assist on deciding.
FAQs about transactional funding for real estate
What is an example of transactional funding?
Imagine a wholesaler, Bob, finds a property selling for $250,000. Bob has an end buyer, Steve, ready to buy it for $265,000. Bob uses transactional funding to get a loan for $250,000, buys the property, then immediately sells it to Steve. Bob’s profit, after lender fees, could be around $9,000, demonstrating a practical use of this funding.
What is transactional lending in real estate?
It’s a short-term loan for estate investors. The investor purchases a property and immediately resells it.
These loans fill the gap between buying and selling, without having an investor putting any of their own capital.
What does it mean when a real estate transaction is funded?
It is getting approved access of outside funds and using it on the home, to have all parties follow through on deal. With this loan type, funding signifies approval of quick funding without a formal loan process.
What are the requirements for transactional funding?
The main things needed will often times include an end buyer under contract ready to buy. Also it may help if the investor is already registered as a legal business.
Conclusion
Transactional funding for real estate serves a specific, yet crucial, role in the investment world. This financial strategy offers a fast and straightforward method for investors to complete estate deals, particularly in wholesaling.
Knowing the details of transaction funding allows a real estate investor to act quickly and be creative in seizing opportunities. Transactional funding is key to securing deals.
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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