A Real Estate Investor’s Guide To Transactional Funding
A Real Estate Investor’s Guide To Transactional Funding
Abstract
What is Transactional Funding? Also called same-day funding or flash funding, transactional funding is a unique financial strategy in which investors take out very short-term loans to make purchases, then pay back those loans much more quickly than normal, oftentimes within the same day or week. How Does Transactional Funding Work? There are several key agents in a transactional funding process: A lender that provides the money for the transactional funding An intermediate agent, like a real estate investor or real estate wholesaler An initial seller, who sells the target property to the real estate investor An end buyer, who buys the target property from the real estate investor once the investor gets the cash they need from the lender In most cases, capital is available from hard money or private money lenders. Pros & Cons Of Transactional Funding Transactional funding is a proven strategy that has found its way into investors' playbooks. Pros of Transactional Funding The pros of using transactional funding include, but are not limited to: Loans Cover The Entire Cost Of The Property: There's minimal risk for real estate investors and wholesalers, as the loans provide 100% of the loan amount to purchase a property. Cons of Transactional Funding The cons of using transactional funding include, but are not limited to: Closing Costs: The funds from a transactional funding deal come with closing costs. Generally, you'll need: An end buyer contract that proves the end buyer's funds are present to convince the transactional lenders that the deal can go through ASAP Possibly a credit report and background checks for the borrower Some due diligence for the property, like a desktop valuation or examining pictures from the interior and exterior of the property Many lenders may also require a letter, which evaluates the borrower based on the "5 Cs of Credit" Alternatives to Transactional Funding Given the risk inherent with transactional funding, some real estate investors may wish to consider alternatives, including: Hard Money Loans: Offered by private lenders, hard money loans offer short-term capital, which is backed by the subject property. Summary All in all, transactional funding can be an excellent tool in your real estate investing repertoire, particularly if you stumble upon a great deal you want to jump on ASAP. But keep in mind that you will need a guarantee of an end buyer's funds, plus their willingness to pay, to secure transactional funds from a suitable lender.