What is 90-Day Transactional Funding: Guide and FAQs

Intro: Maximize Profits With 90 Day Funding

As an investor constantly seeking efficient and low-risk strategies within the real estate arena, the advent of 90-day transactional funding has emerged as a useful tool, particularly for flipping properties and the Brrr strategy (for more on Brrr strategy, check out Forbes article on Brrr method). This guide, tailored for investors like us, aims to demystify 90-day transactional funding, illustrating its workings, benefits, and addressing frequently asked questions surrounding its application.

90-day transactional funding is a specialized short-term financing solution crafted to support real estate investors engaged in double closing or wholesaling transactions. It provides a financial bridge, allowing investors to purchase a property and subsequently sell it or refinance it within a short duration, ideally under 90 days. This funding mechanism is specifically designed to cater to the dynamic needs of investors aiming to capitalize on quick turnover opportunities without the burden of long-term financial commitments.

How Transactional Funding Works

The process initiates with the investor identifying a property that can be acquired below market value, coupled with securing an end buyer willing to purchase at a higher price or having a refinance lined up. With both transactions poised for action, the investor seeks transactional funding, which is characteristically swift to secure, facilitating the rapid closure of the deal. The investor then executes the purchase using the transactional funding and proceeds to sell the property to the end buyer or the refinance. The sale's or refinance proceeds are utilized to repay the transactional loan, including any accrued fees and interest, with the residual amount marking the investor's profit.

Benefits of Transactional Funding

No Out-of-Pocket Expense: Investors don’t need to use their own capital to fund the initial purchase.

Quick Access to Funds: The approval and funding process is rapid, facilitating immediate transactions.

No Credit or Income Verification: Lenders typically do not require a credit check or income verification, focusing instead on the viability of the deal itself.

What to Consider with Transactional Funding

Fees and Interest Rates: These loans come with higher fees and interest rates compared to traditional financing, reflecting the higher risk and short-term nature of the loan.

Dependence on End Buyer: The success of this funding strategy hinges on having a reliable end buyer; any delays or fall-throughs can complicate the transaction.

Transactional Funding Meaning

Transactional funding stands as a financial tool specifically engineered for the dynamic needs of short-term real estate ventures, notably in the spheres of wholesaling, flipping, and the Brrr strategy. Fundamentally, it acts as a bridge loan, meticulously covering the entire purchase price along with closing costs for a property poised for immediate resale/refinance. Crafted to streamline the process of back-to-back real estate transactions, this funding mechanism enables a buyer—typically an experienced real estate investor or wholesaler—to acquire a property and then quickly sell it to an end buyer, often within the same business day.

The attraction of transactional funding primarily lies in its capacity to allow investors to execute transactions without dipping into their own pockets, thus significantly reducing financial exposure and enhancing the potential for profit with minimal initial investment. This method proves especially beneficial in scenarios demanding rapid turnovers, providing the essential liquidity for swift acquisition and disposition of properties. Distinct from conventional financing avenues, the scrutiny here shifts away from the borrower's credit history or financial standing to the transaction's inherent viability—particularly the presence of a committed end buyer and the ability to conclude the resale expediently.

Integral to this funding model is the reliance on the final sale to reimburse the loan, incorporating the costs related to transactional funding—such as origination fees, heightened interest rates, and processing fees—into the overall expenses of the deal. These costs, albeit higher than traditional lending solutions, are strategically offset against the transaction's profit, making transactional funding an indispensable strategy for many real estate investors. It provides a seamless avenue to leverage market opportunities devoid of the hefty initial capital typically required or the constraints imposed by conventional lenders.

By facilitating such transactions, transactional funding essentially acts as a catalyst, fostering seamless and efficient market operations. It equips investors with the means to rapidly close deals, navigating through the complexities of the real estate market with a strategic edge. Utilizing transactional funds eliminates the need for hard money loans or private lenders, bypassing the rigorous credit checks and down payment requirements. Moreover, the process involves various stakeholders, including closing agents, national title companies, and financial institutions, ensuring the entire process from the earnest money deposit to the final b-c closing and back closings is handled with utmost precision.

Incorporating transactional funding into an investor's toolkit offers not just a buffer against the unpredictability of the real estate bubble burst but also ensures a smooth transaction flow, from the request for funds to the b transaction at the closing table. It empowers investors to utilize flash funds for rental properties, bank-owned properties, or HUD transactions (for more on HUD transactions check out latterly.org on What Does HUD Mean), providing a clear exit strategy and securing potential buyers with ease.

Through the strategic application of transactional funding, investors can confidently approach wholesale real estate deals, maximizing profits while minimizing personal financial risk, making it the best transactional funding practice in today's market.

Transactional Funding for Wholesalers

Transactional funding, often referred to as flash funding or transactional loans, has emerged as a great strategy for real estate wholesalers, empowering them to carry out transactions with unmatched speed and effectiveness without dipping into their own pockets. This short-term loan, usually not extending beyond a few business days, is meticulously crafted for wholesalers orchestrating the acquisition and prompt resale of properties with the double closing strategy. At the heart of transactional funding is its capacity to finance the entire purchase price along with closing costs for properties under contract, swiftly transitioning them to an end buyer, frequently within the same day, Also known as the back-to-back closing.

This financing model is particularly enticing for wholesalers as it dismantles the financial roadblocks that typically slow down the deal-closing process. It bypasses the cumbersome and slow traditional financing avenues, such as hard money loans or dealing with private money lenders, which are often bogged down with rigorous credit checks and proof of income requirements. Instead, transactional funding zeroes in on the deal's merit, with transactional funders placing a premium on the resale's viability and the presence of a committed end buyer. This agility ensures wholesalers can capitalize on under-market deals, facilitating property flips for a profit with reduced financial exposure.

Transactional funding offers the discretion of keeping the funding source undisclosed from both the end buyers and the original sellers, enabling smoother transactions. The essence of effectively leveraging transactional funding lies in meticulous organization and strategy, requiring wholesalers to have a definitive exit plan and a trustworthy end buyer ready to proceed. Although the costs tied to transactional funding, such as origination fees, interest rates, and processing fees, may surpass those linked with traditional lenders, the swift turnover of properties and the potential for profit without the need for an upfront investment render it an invaluable asset in a wholesaler's toolkit.

Transactional funding also adapts to various types of transactions, from short sales and HUD properties (department of housing and urban development) to bank-owned and commercial properties, offering extended transactional funding solutions for deals requiring a slightly longer timeframe. With transactional funders, the application process is streamlined, typically involving a funding request form that outlines the loan amount, fee structure, and contact information, ensuring experienced investors can navigate even the most complex deals, such as B-C closings or joint ventures, with ease.

In summary, transactional funding, or flash funding, stands as the best way for real estate wholesalers to execute same-day back-to-back transactions efficiently. It aligns with the needs of modern real estate transactions, from wholesale deals and short sale transactions to more extended dealings, emphasizing the importance of a solid relationship with transactional funders, national title companies, and closing agents to ensure the entire process from the funding request to the closing table unfolds seamlessly.

Transactional Funding Proof of Funds

In the realm of real estate investing, particularly for those involved in wholesaling and flipping, the concept of "proof of funds" (POF) is a critical component that facilitates the smooth execution of transactions. Transactional funding, a pivotal strategy for investors seeking to bridge the gap between purchase and resale, inherently requires the demonstration of proof of funds to all parties involved. This proof serves as a tangible assurance that the funds necessary to complete the initial purchase are readily available, thereby instilling confidence among sellers, intermediaries, and end buyers regarding the viability and promptness of the transaction.

The essence of transactional funding lies in its ability to provide immediate capital for short-term real estate deals, enabling investors to leverage opportunities without deploying their own funds. However, to activate this mechanism effectively, investors must present a proof of funds letter from their transactional lender or end buyer. This letter indicates that the investor has the financial backing to purchase the property outright, a crucial factor in negotiating deals and securing contracts. For sellers, the presence of a POF letter mitigates the risk of entering into a contract with a buyer who lacks the liquidity to close the deal. For end buyers, it reassures that the transaction has the financial structure to proceed smoothly to completion.

The POF from transactional funding sources differs from traditional financing in that it specifically validates the investor's capacity to execute a swift, short-term purchase and resale, without the lengthy approvals and underwriting processes associated with conventional loans. This speed and efficiency are paramount in competitive real estate markets, where the ability to quickly secure and flip properties can distinguish successful investors from the rest.

The requirement for proof of funds underscores the transactional funding model's reliance on solid, executable deals rather than the creditworthiness of the borrower. It reflects a strategic approach to real estate investing, where the clarity and certainty of financing arrangements pave the way for successful transactions. As such, a proof of funds letter is not merely a formality but a foundational element of transactional funding, enabling investors to operate with greater confidence and credibility in the fast-paced real estate environment.

Conclusion

As we wrap up our exploration of 90-day transactional funding, I hope this guide has shed light on a powerful tool that can significantly enhance your real estate investment strategy. Embracing this financing option can be a game-changer, offering you the flexibility to seize opportunities with agility and minimal upfront capital. From personal experience, the key to success lies in meticulous planning, understanding the intricacies of your deals, and having a solid exit strategy. Whether you're flipping houses or leveraging the BRRR method, transactional funding can provide the financial bridge you need to navigate your investments with confidence and efficiency. Remember, every real estate journey is unique, and incorporating transactional funding into your toolkit could be the catalyst that propels your investing career to new heights. Here's to making informed decisions and achieving remarkable success in your real estate ventures.

FAQs

Who is eligible for 90-day transactional funding?

Investors who have a property under contract and a lined-up end buyer may be eligible. The key is having both the buy and sell side of the transaction ready to go.

What is Transactional Funding?

Transactional funding is a short-term loan provided to real estate investors specifically for the purpose of facilitating a quick, back-to-back purchase and sale of a property, often within the same day. This type of funding is designed to cover 100% of the purchase price plus closing costs for properties that are immediately resold, making it an essential tool for wholesalers and flippers who aim to profit from real estate transactions without using their own capital.

What is an Example of Transactional Funding?

An example of transactional funding would be a real estate investor who identifies a property that they can purchase for $100,000. The investor also finds an end buyer willing to buy the property for $120,000. The investor does not use their own funds for the purchase. Instead, they secure transactional funding for the $100,000 purchase price plus closing costs. After purchasing the property, the investor immediately sells it to the end buyer for $120,000. The loan is repaid from the sale proceeds, and the investor keeps the difference as profit.

How Long is Transactional Funding?

Transactional funding is extremely short-term, typically lasting just enough time to complete the back-to-back transactions. While the exact duration can vary, it is often no more than a few days. The most common scenario involves closing the purchase and the sale within the same day, hence the alternative name "same-day funding." However, some lenders may offer transactional funding for up to 90 days, depending on the specifics of the deal and the lender's policies.

What is a Transactional Loan?

A transactional loan is another term for transactional funding. It refers to the short-term financing provided to real estate investors to facilitate the purchase and immediate resale of a property. This loan covers the entire purchase price and sometimes the closing costs of a property, with the expectation that it will be repaid promptly from the proceeds of the resale. Transactional loans are a crucial financial tool for investors engaging in wholesaling and flipping, allowing them to execute transactions quickly without tying up their own capital.

Related Articles:

•  The Ultimate Guide To Co-Wholesaling Real Estate (pilottepropertysolutions.com)

• Top Real Estate Investment Strategies for 2024 (pilottepropertysolutions.com)

• Wholesaling Real Estate: Top 3 Ways of Finding Deals! (pilottepropertysolutions.com)