In real estate investing, transactional funding can be a powerful tool to facilitate complex deals. One strategy gaining attention is using C-to-B transactional money to fund B-to-A closings. This method, though intricate, offers investors a way to navigate challenging scenarios, especially when conventional financing falls short.
Before diving into the strategy, it’s important to understand the terminology. In a typical double closing, the A-B transaction refers to the first leg, where Investor B purchases a property from Seller A. The B-C transaction is the second leg, where Investor B sells the same property to Buyer C. Normally, Investor B needs funding to close the A-B transaction before selling to Buyer C.
However, Investor B may not have the capital to close the A-B transaction upfront. This is where C-to-B transactional funding comes into play. The idea is to use funds from Buyer C to complete the B-to-A transaction. Essentially, you’re leveraging the capital from the end buyer (C) to close the initial purchase (B-to-A), creating a seamless flow of funds.
The primary advantage of this method is that it allows an investor to close deals without tying up personal capital. This can be especially beneficial when the investor’s capital is already committed elsewhere or when the timing of transactions makes traditional financing difficult.
Moreover, using C-to-B funding can speed up the closing process. Traditional lenders often have lengthy approval processes, which can delay closings and jeopardize deals. With transactional funding, the process is streamlined, enabling investors to close quickly and efficiently.
Executing a C-to-B funded transaction requires careful planning and coordination. Here’s a step-by-step breakdown:
Identify the Deal: The first step is to find a property with potential for profit. This could be a distressed property, a foreclosure, or any property that can be bought at a discount and quickly resold at a higher price.
Negotiate with Seller A: Investor B negotiates a purchase agreement with Seller A. The agreement should include a clause allowing for an assignment of the contract, as this will be crucial for the double closing.
Secure Buyer C: Next, Investor B finds an end buyer (C) willing to purchase the property at a higher price. The key is to ensure that Buyer C’s funds will be available in time to complete the B-to-A transaction.
Arrange Transactional Funding: Investor B approaches a transactional funding lender to obtain the necessary funds for the A-B closing. The lender will provide a short-term loan, typically for 24-48 hours, covering the cost of the A-B transaction.
Coordinate Closings: On the closing day, the B-to-C and A-to-B transactions happen in quick succession. Buyer C’s funds are used to pay off the transactional loan and complete the B-to-A closing. The remaining balance, after all expenses and fees, is Investor B’s profit.
While C-to-B transactional funding can be highly effective, it is not without its challenges. Timing is critical in these transactions. Both closings must be tightly coordinated to ensure that funds are available precisely when needed. Any delay or miscommunication could jeopardize the entire deal.
Another consideration is the cost of transactional funding. These loans typically come with higher fees compared to traditional financing due to their short-term nature and the risks involved. Investors must carefully calculate their potential profit margins to ensure that the deal remains lucrative after covering these costs.
Legal considerations are also important. Not all title companies or attorneys are familiar with, or willing to facilitate, double closings using transactional funding. It’s essential to work with professionals who understand the nuances of these transactions to avoid any legal or logistical issues.
To illustrate how this strategy can be applied, consider a real-world scenario discussed on BiggerPockets. An investor identified a distressed property that could be purchased for $150,000 (A-B transaction) and resold for $200,000 (B-C transaction). The investor did not have the capital to close the initial A-B transaction but had already secured Buyer C, who was ready to purchase the property.
The investor arranged for a transactional funding loan to cover the $150,000 purchase price. On the day of closing, Buyer C’s funds were used to repay the transactional loan, complete the A-B closing, and finalize the B-C sale. After covering all costs, the investor walked away with a substantial profit, all without using personal capital.
C-to-B transactional funding offers a strategic solution for real estate investors looking to maximize opportunities without tying up their own capital. By leveraging the funds of the end buyer to facilitate the initial purchase, investors can execute complex deals that might otherwise be out of reach.
However, success with this strategy requires meticulous planning, a solid understanding of the process, and collaboration with knowledgeable professionals. When executed correctly, C-to-B transactional funding can be a powerful tool in an investor’s arsenal, enabling them to close deals quickly and profitably.
emdtransactionalfunding.com offers fast and convenient EMD and double-closing funding services for real estate investors and wholesalers nationwide. To get the deposit you need for your next deal, fill out the form or reach out to our team!
COPYRIGHT © 2024 EMD TRANSACTIONAL FUNDING
A SERVICE PROVIDED BY GATOR EQUITY LLC.
