Transactional funding is a short-term, 100% financing option used by real estate wholesalers to close back-to-back property transactions, often referred to as “double closings.”
How Transactional Funding Works
- A-B-C Structure: The transaction involves the original seller (A), the wholesaler/investor (B), and the end buyer (C).
- The A-B Deal: Wholesaler (B) uses transactional funding to purchase the property from Seller (A).
- The B-C Deal: Wholesaler (B) immediately sells the property to Buyer (C), typically within 24 to 48 hours.
- Loan Payoff: The funds from Buyer (C) are used to instantly pay off the transactional lender.
4 Simple Steps to Execute a Double Closing
- Secure Contracts: Sign a purchase agreement with Seller (A) and a separate resale agreement with Buyer (C).
- Apply to Lender: Provide a transactional lender with proof of both executed contracts and title commitments.
- Fund the First Leg: The lender deposits 100% of the purchase price and closing costs into escrow for the A-B closing.
- Close and Profit: The escrow agent closes the B-C transaction on the same day, pays the lender back with interest/fees, and wires the remaining profit to you.
Key Characteristics and Requirements
- Same-Day Turnaround: Most transactional loans must be opened and closed on the same day, though some lenders extend up to 48 hours.
- No Credit Checks: Lenders do not look at your personal credit score or income because the loan is backed by the end buyer’s guaranteed funds.
- Proof of End Buyer: You must have a qualified, legally bound end buyer (C) with funds already waiting in escrow before the lender will release the cash.
- Higher Fees: Instead of traditional interest rates, lenders charge a flat funding fee, usually ranging from 1% to 2.5% of the loan amount.
Why Investors Use It
- Legality: Many states heavily restrict wholesaling via “contract assignments.” Transactional funding avoids this by making you the actual legal owner of the property for a brief moment.
- Hidden Profits: Unlike a contract assignment where the buyer sees exactly how much assignment fee you make, a double closing keeps your profit margin completely private from both parties.
- Zero Capital Needed: You do not need a down payment or cash reserves since the lender covers 100% of the primary purchase