The use of transactional funding

 

In most cases the term “flip a property” means that you have access to a property and a person who wants to buy it from you.  The problem is that before the property can be flipped, it has to be purchased and paid for.  If you are a new player in real estate investing you may not have access to funds to complete the purchase, this is where transactional funding comes into the picture.  The money that you need is made available by a company that specializes in transactional funding and hard money loans. This company provides the cash and after the end buyer has closed, the company takes its cut and the investor keeps the rest as profit.

These types of double closing transactions used to be done by title companies.  As a result of the mortgage mess that started to become unglued in 2007, many changes took place in lending businesses and real estate businesses, one result of the meltdown was that double closing, where one deal funded the other went by the wayside, at least from the point of view of title companies.  Just because the title companies are no longer involved does not mean that double closings are no longer possible, there is still a way to wholesale a property or flip a property without using your own money.

For a company to be interested in offering transactional funding for real estate the first order of the day is that you have to come to them with a deal already established which is profitable for them and for you.  You have to have the property in question purchased at an attractive price and a ready purchaser sitting in the wings ready to buy it at a substantial profit.  The profit needs to be substantial as the lender will charge a cover fee that can be significant and must be factored into the deal.

Basically, transactional funding is very short term money, in many cases both transactions take place on the same day.  The lender places the funds with the title company and the first deal is closed. Immediately after closing, you move on to the second deal and close it.  The closing statement reflects the payment that has to be made to the transactional lender; you get what is left over as your profit.

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    Author: Kendrick Wilkes

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