How Transactional Funding Helps Close Back-to-Back Deals
Learn how short-term capital bridges gaps between your A-B and B-C closings.
Austin Beveridge
Tennessee
, Goliath Teammate
Are you struggling to close back-to-back real estate deals due to cash flow issues? You’re not alone. Many investors face the challenge of securing financing for one deal while simultaneously needing funds for another. Transactional funding can be the solution you need to streamline your process and ensure smooth transactions.
Quick Answer: Transactional funding provides short-term loans that allow you to purchase a property and immediately sell it, without needing your own cash upfront. This type of funding is typically used in back-to-back transactions, enabling you to close deals quickly and efficiently. By using transactional funding, you can leverage the sale proceeds to pay off the loan, making it a powerful tool for real estate investors.
Understanding Transactional Funding
Transactional funding is a specialized type of financing designed for real estate investors who need quick access to capital for short periods. It is often used in scenarios where investors are flipping properties or engaging in back-to-back transactions. Here’s how it works:
How It Works
The investor identifies a property to purchase and secures a buyer for that property.
Transactional funding is obtained to purchase the property, usually for a very short term, often just a few hours or days.
Once the purchase is complete, the investor sells the property to the end buyer.
The proceeds from the sale are used to pay off the transactional loan.
Benefits of Transactional Funding
Using transactional funding can significantly enhance your ability to close deals quickly. Here are some key benefits:
Speed: Close deals in a matter of hours.
No credit checks: Approval is typically based on the property’s value.
Minimal paperwork: The process is streamlined for quick access to funds.
Realistic Examples
Let’s look at a couple of scenarios to illustrate how transactional funding works in practice:
Scenario 1: The Quick Flip
Imagine you find a distressed property listed at $100,000. You have a buyer ready to purchase it for $120,000 the next day. However, you don’t have the cash to buy the property upfront. By using transactional funding, you can secure a loan to buy the property, close the deal, and then sell it to your buyer, pocketing the $20,000 profit after paying off the loan.
Scenario 2: The Chain of Deals
Suppose you are managing multiple deals at once. You need to buy a property for $250,000 but have another buyer lined up willing to pay $275,000. With transactional funding, you can close on the first property, sell it to your buyer, and use the proceeds to pay off the funding, allowing you to keep your cash flow intact while closing both deals successfully.
Checklist for Using Transactional Funding
Identify properties with a clear resale value.
Secure a buyer before purchasing the property.
Research and choose a reliable transactional funding source.
Prepare necessary documentation for the funding process.
Ensure you have a clear exit strategy for the property.
Common Mistakes to Avoid
While transactional funding can be a great tool, there are common pitfalls that investors should avoid:
Not having a buyer lined up: Failing to secure a buyer before purchasing can lead to financial loss.
Underestimating costs: Be aware of all fees associated with transactional funding.
Neglecting due diligence: Always research the property thoroughly to ensure it’s a good investment.
FAQs
What is transactional funding?
Transactional funding is a short-term loan used by real estate investors to purchase a property and quickly sell it, without needing their own cash upfront. It allows for fast transactions in back-to-back deals.
How long does transactional funding last?
Transactional funding typically lasts from a few hours to a few days, just long enough to complete the purchase and sale of a property.
Are there any fees associated with transactional funding?
Yes, transactional funding usually comes with fees, which can include origination fees, interest rates, and closing costs. It's important to understand these costs before proceeding.
Can I use transactional funding for any type of property?
Transactional funding can be used for various types of properties, but it’s most commonly used in real estate flips or wholesale deals where there’s a clear exit strategy.
Is my credit score important for transactional funding?
No, most transactional funding sources do not require credit checks, as the loan is primarily secured by the value of the property being purchased.
