Are you a real estate wholesaler or property investor seeking fast access capital? You might have heard of transactional funding for real estate investors, but perhaps you’re unsure how it works. This financial strategy is used by many estate investors, so understanding it can be beneficial.
This guide offers real estate investors an inside look at how transactional funding can boost your business. It’s a specific type of short-term loan designed to close deals quickly.
Table of Contents:
- What is Transactional Funding?
- Breaking Down the Process of Using a Transactional Lender
- Key Players in Transactional Funding for Real Estate Investors
- Costs and Fees with Transactional Funding
- Finding the Right Transactional Funding Lender
- Advantages of Transactional Funding
- The Downsides of Transactional Funding
- FAQs about transactional funding for real estate investors
- Conclusion
What is Transactional Funding?
Transactional funding is a short-term financing method. Real estate investors often use it in double closings or back-to-back closings.
Here’s the basic idea: as the investor (Party B), you have a contract to buy property from a seller (Party A). You also have a buyer contract to sell that same property to an end buyer (Party C) at a higher price.
How Transactional Funding Works
Transactional funding provides the cash needed to complete the first purchase (A to B). You then quickly resell the property to your end buyer (B to C). Afterward, pay off the transactional funding deal with funds from the resale deal.
The appeal is speed and efficiency. These deals can happen within the same day or a few days, unlike obtaining a traditional mortgage.
Breaking Down the Process of Using a Transactional Lender
This might sound good in theory. But how does such a deal work in practice?
Let’s walk through the process. We will break down how each step functions in a typical transactional funding deal.
Finding the Deal and the End Buyer
First, you locate a property sold below market value. Then, you find an end buyer willing to pay more than your contracted price.
This is the most challenging part. However, it can yield significant benefits with minimal risk once these elements are in place.
Securing the Transactional Loan
Next, contact a transactional lender, like Fund My Double Close. They will provide the funds needed for the initial purchase.
Lenders often consider the “5 C’s of Credit” when determining rates. You can learn more about how the 5 C’s of Credit work here. Remember the “collateral,” which is your payment to the end buyer.
Closing the A-B Transaction
With the loan secured, use the funds to purchase property from the original seller (Party A). It’s crucial that all parties understand it’s part of a double closing. The title company wants things done correctly to avoid future issues.
Closing the B-C Transaction
Immediately after buying, you sell property to your end buyer (Party C). Their funds complete the sale.
Repaying the Loan
After selling the property, repay the transactional funding. Then, keep the remaining profit.
This entire process can occur within 24 hours if coordinated properly.
Key Players in Transactional Funding for Real Estate Investors
Besides lenders, several parties are involved. All should have defined roles.
First is the original seller (“Party A”). Second is the real estate investor, you in this case (“Party B”). Finally, there’s the end buyer (“Party C”).
Due Diligence in the Transactional Funding Process
Transactional lenders perform due diligence, despite the fast turnaround. Some may request photos to assess the property’s condition.
They might run a desktop valuation. Don’t assume transactional funding bypasses this step.
Costs and Fees with Transactional Funding
Transactional funding isn’t free. Account for fees when considering this option. Lenders charge fees, usually between 2% and 12% of the loan amount, as noted by RETipster.com.
The exact amount varies. Factors include loan size and lender policies. It may also involve closing costs, like standard real estate transactions.
At FundMyDoubleClose.com, rates are 1% for loans up to $1,000,000. For higher loans, the rate increases to between 2% and 3%.
Transactional Funding Fees Breakdown
Here’s a breakdown of typical transactional funding costs. This will provide a clearer view of potential fees.
| Loan Amount | Fee Percentage | Additional Notes |
|---|---|---|
| Up to $1,000,000 | 1% (minimum fee of $1,000) | Can be funded same day |
| $1,000,000 – $2,000,000 | 2% | Funding requires multiple business days |
| $2,000,000 – $5,000,000 | 3% | Funding requires multiple weeks |
| Holding funds for more time. | 0.25% per day. | If funds are kept beyond the agreed period |
Finding the Right Transactional Funding Lender
Choosing the right lender is crucial. Consider several factors.
First is funding speed. Some, like Paces Funding, process loans quickly using their own funds.
Consider reputation. Seek lenders with a history of successful transactions. Also, prioritize transparency. Check if they clearly explain loan terms and fees, as emphasized by lenders like Jet Lending.
Other Potential Funding Sources for Consideration
Understanding their track records is crucial.
- Equity Max: They advertise funding, potentially same-day, with fast processing, according to their website.
- Washington Capital Partners: A provider describing itself as “one of the best transactional funding real estate lenders.”
- Tidal Loans: Considered potential lenders for investors with low credit scores, offering alternatives.
- Loan Ranger Capital: Offers exploration via an “apply now” button on their website.
Advantages of Transactional Funding
Transactional funding provides benefits that traditional sources may not.
Access to Deals
This lets you seize opportunities. This even applies when you lack immediate cash.
Speed
Closings occur rapidly. Sometimes, they conclude the same day you apply.
Minimal Risk
It’s short-term, reducing personal financial risk. However, fees and rates may be higher.
100% Funding
Some, like FundMyDoubleClose.com, offer 100% financing. This covers the full price and potentially closing costs.
The Downsides of Transactional Funding
Consider these points before proceeding.
You *must* have an end buyer. Loans often depend on this.
Short Time Frames for Payback
You’re typically under pressure. Many require repayment within 48 hours.
Note that this can cost more than traditional real estate investments.
FAQs about transactional funding for real estate investors
What is transactional funding in real estate?
It’s a very short-term loan. Investors get funds to purchase property, planning a quick, profitable resale.
How much does transactional funding cost?
It depends on the lender. It typically ranges from 2% to 12% of the amount.
How do real estate investors get funding?
They apply to specialized transactional lenders. These are often “hard money” lenders in the field.
What does it mean when a real estate transaction is funded?
It means the necessary funds are available. This lets the title company complete the transfer.
Conclusion
Understanding transactional funding for real estate investors reveals potential investment paths. It’s vital to grasp all aspects of short-term lending.
By evaluating the pros and cons, investors can gain significant advantages. Many investors find this strategy ideal for quick, low-risk gains in the housing market.
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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