While I often get common questions about wholesale real estate – like, what is it, how is it used, how do I start – a unique question I’ll get is about transactional funding.
Maybe it’s a term you’ve heard before or heard of a situation where it may have been used. If you’ve ever wondered about transactional funding meaning, how it relates to wholesale real estate, and why we as wholesalers should consider it, then get ready to dive in.
What is Transactional Funding?
Let’s get the big question out of the way first – what is transactional funding?
Transactional funding is a type of short-term financing that’s used to facilitate real estate transactions where the traditional financing routes aren’t possible. Cases like assignments or double closes will often need to have transactional funding.
Jamil, you’re asking, why would someone need to use transactional funding to get a deal done?
As mentioned, there are a few reasons, most notably the ability to do assignments and double closes. Some states may not allow for these or simultaneous closes where the buyer’s funds are being used to close the first transaction.
Transactional funding may also be known as short-term funding, flash funding, same-day funding, or ABC funding. They’re the same thing, but some places may call them different things.
How Transactional Funding Works
Now that you have a better understanding of what transactional funding is, let me explain how it works in a wholesale situation.
Again, if a wholesaler is in a state where simultaneous closes can’t be done, especially if the close is happening at a title company, then a wholesaler would turn to transactional funding.
How this works is a third party will come in and looks at the deal itself, before looking at the purchase and sale agreement. The third party makes sure that everything in your documentation is correct, there are no errors, and both sides of your transaction are complete.
When all the T’s are crossed and the I’s have been dotted, the third party company will then wire money to the title company on your behalf as a lender. This allows you to have the property in your name.
At that point, you would then complete your second contract, taking the lender out of the deal so you can close. Afterward, the money that is received goes into part to paying whatever costs the third party required and you receive the difference.
Why Wholesalers Should Consider Transactional Funding
Knowing the definition and actions of using transactional funding, I think the considerations for wholesalers to use it are clear.
First and foremost, it provides a solution to ensure that a deal gets done, especially if you’re struggling to close those deals.
Another reason wholesalers should take advantage of transactional funding is when they know someone who does this type of funding. One of the members in my AstroFlipping community happens to provide transactional funding to our community.
I, myself, have provided transactional funding when a community member might need it in order to close a deal.
The importance of knowing someone who does transactional funding isn’t just their ability to help you out if needed, it’s the prospect of being able to build a relationship with that person.
As you know, our business is all about relationships and the more useful ones we have, the better we’re able to find and close our deals. It also means we gain further support in our efforts, as well as building our credibility.
If you want to learn more about transactional funding and how it works with assignments and double closes, check out my video below:
As always, if you need help or support in any way, be sure to either join our Facebook group or become a member of our awesome and growing community!