Mastering Transactional Funding Real Estate: A Complete Guide

You’ve been in the real estate wholesaling game for a while, maybe you’ve even studied up on using programs like REDX for real estate team prospecting. You know the thrill of finding that perfect property, connecting a motivated seller with an eager buyer, and collecting your fee. But what about when deals come fast or you just don’t want to mess with your personal funds on a transaction?

That’s where transactional funding real estate steps in. It is a short-term financing solution for real estate wholesalers.

Essentially, transactional funding real estate acts as a bridge loan, covering the purchase price of a property, giving you time to sell it and get profits.

Table of Contents:

• Understanding Transactional Funding
  • The ABCs of Transactional Funding
  • Why Use Transactional Funding?
  • Who Provides Transactional Funding?
• Transactional Funding in Action
  • Real-Life Example of How This Works
• How much does Transactional Funding Cost
• Potential Downsides
• Using Technology to Simplify Transactional Funding Real Estate
• Eligibility for Transactional Funding
  • Understanding the Process and Requirements
• FAQs about transactional funding real estate
  • What is transactional funding in real estate?
  • What does it mean when a real estate transaction is funded?
  • How much does transactional funding cost?
  • What is a transactional broker in real estate?
• Conclusion

Understanding Transactional Funding

Think of transactional funding as a very short-term money loan specifically designed for double closings or back-to-back real estate transactions. It’s also known as flash funding or same-day funding. A wholesaler or investor (“B”) uses the funds to buy the property from a seller (“A”).

Then, “B” quickly assigns the contract to a ready end buyer (“C”). This often takes place on the very same day or within just a few days and up to a week at most.

The ABCs of Transactional Funding

The process is simple.

You, the wholesaler (B), find a property. You secure a contract with the seller (A) and then locate a buyer (C) for the property.

The transactional funding covers the A-B transaction. The money from your buyer (the B-C transaction) then repays the transactional loan, often within 24-48 hours.

Why Use Transactional Funding?

There are several reasons you would want this method.

• Traditional lenders often can’t move fast enough for these real estate deals. Transactional lenders specialize in speed.
• It keeps your own capital free. You’re not tying up your own cash in the deal.
• You can usually get access to these transactional loans for between 2% and 12% of the total loan amount.

Who Provides Transactional Funding?

Typically, these funds come from private money lenders or hard money lenders, who work quickly, not giant banks with massive processes. These groups know the business.

These aren’t the big, slow-moving financial institutions. Because time matters, most people use private money. Larger businesses can’t generally make transactions fast enough.

Transactional Funding in Action

Let’s use a scenario that involves real estate wholesaling in paradise to explore how this plays out.

Imagine you are connected with an end buyer wanting to work with a company, like Ohana in Maui, Hawaii, who needs a property quick. You discover a home that’s perfect and negotiate a deal with the homeowner.

The price from the seller is $300,000. You’ve got a buyer ready to purchase at $350,000. The problem is that closing with a mortgage can take a very long time. For instance, 30-year fixed-rate mortgage rates were over 7% in late 2022.

Real-Life Example of How This Works

You could contact a company, like Equity Max, that can quickly evaluate your situation.

Once you have access to capital, your end-buyer completes the transaction by putting funds in escrow and the deal can be closed.

Using transactional funding lets you facilitate the deal without your cash. It means you make the process work with minimal risk. Your main investment is time.

How much does Transactional Funding Cost

It depends on a couple things.

The rates charged by the transactional funding lender depend partially on the borrower. Each can be evaluated according to the “5 C’s of Credit”.

Expect costs somewhere. Typical fees range from 2% up to 12% in some cases, potentially including percentage points based on the loan amount.

Potential Downsides

Things can slow down a real estate transaction. You can incur late fees or other costs that impact profits.

Make sure you completely analyze every funding deal. The entire process depends on good timing.

Also, the end buyer needs to be capable of paying in full. This avoids deal breaking delays and timing issues with the closing dates.

Using Technology to Simplify Transactional Funding Real Estate

Technology streamlines parts of many transactions. It simplifies processing by reducing physical paperwork, which creates efficiency and cost savings for transactional funding and other processes.

This is especially true with the rise of online real estate platforms. The use of technology can make it much easier for all parties involved, from buyer to closing agent.

This results in needing money faster.

Eligibility for Transactional Funding

Needs will vary slightly based on lenders.

Typically, though, there are basic eligibility requirements. The core pieces of information involve demonstrating proof of funds to pay for the transaction as well as a legitimate buyer contract in place, acting as official backing.

Lenders often perform their due diligence by doing things like completing a desktop valuation of the property and obtaining title reports. No upfront fees or processing fee are involved. Borrowers don’t usually have many obligations and there are typically minimal costs.

Understanding the Process and Requirements

Here’s a simple breakdown of what to expect:

Step	Description	Key Considerations
1. Find a Deal	Identify a wholesale deal where you have a seller (A) and an end buyer (C) lined up.	Speed is crucial; the faster you can connect A and C, the better.
2. Apply for Funding	Contact a transactional lender and provide details of the deal. The lender provide details to complete the next steps.	Have all your paperwork ready, including the A-B and B-C contracts. You might also want to send written confirmation between all parties.
3. Lender Review	The lender will quickly review the deal, primarily to verify that you have a legitimate end buyer. They are checking the viability of the B-C transaction, needing a POF letter.	They may check the property’s value, and may need a title meet ,but they typically won’t scrutinize your personal credit like with property loans.
4. Funding Approval & Closing	If approved, the lender funds the A-B transaction. Simultaneously, the B-C transaction closes, and those funds repay the transactional lending.	This often happens on the same day. All this happens within the escrow account held by the title company.

The financial strategy can vary and so you may want to become familiar with legal criteria on your own. Forming a business entity could be smart.

FAQs about transactional funding real estate

What is transactional funding in real estate?

Transactional funding is a short-term loan. Wholesalers and real estate purchase investors get fast money to fund quick deals.

They often flip property in a matter of days, sometimes just hours. It is primarily used for house flipping.

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

This simply means the money is there to make a deal happen. When funds are made available for transfer, then a estate purchase or sale is funded and can close.

All sides get the payment that has been agreed to by contract. The property investor then is able to sell property.

How much does transactional funding cost?

Costs range by lender and agreement. Transactional funding include costs for borrowing.

Borrowers might pay around 2% or well more than that, but fees often do not surpass 12% of borrowed money. Funding include these costs and are part of the transactional funding deal.

What is a transactional broker in real estate?

A transactional broker serves as the intermediary between sellers and buyers. This is useful when looking to purchase property.

A transaction broker could be an agent or lawyer, for example. This person is different from transactional lenders that offer a money loan or hard money loan.

Conclusion

If you want flexibility or rapid transaction completion, transactional funding real estate will help, although sometimes it will seem as if all the stars must align just right. The right amount of preparedness will make deals a reality and using a funds letter can show you are serious.

Sometimes, it’s smart to find an associate who understands every element of a transaction that may need to happen. A partnership or even a mentoring arrangement that results in quick capital may help you learn at first and develop on your own down the road, avoiding the need for hard money loans with high origination fee and other closing costs.