Transactional funding has emerged as a crucial tool in real estate investing, particularly for those engaged in wholesaling and property flipping. It offers a short-term financing solution that enables the rapid purchase and resale of properties. This article aims to shed light on the basic requirements for obtaining transactional funding, equipping investors with the knowledge to effectively utilize this financing option.

Understanding Transactional Funding

Transactional funding is a specific type of short-term loan that real estate investors use to finance property purchases. The loan is then repaid quickly, usually within a day or two, through the sale of the property to an end buyer. It’s especially popular in simultaneous closing scenarios where investors prefer not to use their capital.

Key Requirements for Transactional Funding

1. End Buyer Secured: Investors need an end buyer ready for the property. This ensures the transactional loan gets repaid promptly.

2. Defined Exit Strategy: A clear, actionable exit strategy is crucial. Investors must have a plan to sell the property swiftly to the end buyer.

3. Proof of End Buyer’s Funds: Lenders typically require evidence that the end buyer has the necessary funds for the purchase.

4. Limited Duration: Transactional funding is designed for extremely short periods, often less than a week. Quick closure with the end buyer is essential.

5. Valid Contracts: Fully executed purchase and sale agreements for both buying and selling the property are mandatory.

6. Non-refundable Deposit: Some lenders may ask for a non-refundable deposit to ensure the investor’s commitment.

The Critical Role of Escrow

Escrow plays a pivotal role in transactional funding. The loan amount is usually held in an escrow account managed by a title company or attorney. Working with a reputable escrow agent who understands transactional funding is vital. The American Escrow Association offers more information on escrow in real estate.