What is Transactional Funding?
A lot of people ask, “What is Transactional Funding?” Simply put, transactional funding is when an investor uses 3rd party funds for a short period of time to aid in facilitating a real estate transaction. Typically the time period is anywhere from 1-90 days depending on the transactional funding partner. There has been a huge surge lately within the real estate community to secure transactional funding because of the benefits it offers investors. This includes lower fees, less risk, credit and income verifications.
How does Transactional Funding work?
For the longest time, investors were able to use the money from their end buyer to fund the initial transaction between them and the seller. As lending standards tightened up and title companies began to put a stop on these type of transactions, investors began to search for creative ways to use funds long enough to do a simple transaction. This is when transactional funding really took off. Now it has become a very popular way of doing quick flips.
One of the big benefits of using transactional funding are the lower fees that are required compared to that of a hard money or a conventional loan. This is because the money is only used for a short time. Typically fees range from 2% – 3% if it’s short term and then increases the longer the money is out. Transactional funding has become so popular because it can be use on almost any type of deal whether it’s a short sale, REO, bulk REO, residential or commercial flip and probate.
Here’s how it works
Basically it’s structured as a back to back or same day closing. In this type of transaction, you have 3 parties represented as A, B and C. A would be the initial seller (in many cases it’s the bank). B would be the investor or you. C would be your end buyer who is the one that will ultimately end up with the property. There are 2 separate transactions. The first transaction is with A and B. B which is you the investor, will be using our funds to purchase the property from A. These are “wet funds” or cash that we will provide. Then there is a transaction between B and C. Where C is the end buyer who brings in their own cash or gets financing to buy the property from you. This all happens “same day” usually within minutes of each other if it’s a cash buyer.
This is why we like cash buyers (and you should too!) Because sometimes certain lenders don’t like back to back closings and may scrutinize the deal. You may have to provide information to them explaining how in a matter of minutes it’s worth a whole lot more. Some lenders could care less. In a nutshell, this is how it all happens. As you can see, it’s a great way to leverage someone else and use their money.
With transactional funding you have no excuse now to get out there and make offers because we’ve got your back. As long as they fit our criteria, we can fund your deal. This will give you the confidence now to get out there and make some money.