Transactional funding, a crucial concept in real estate investing, can seem daunting for beginners. This article simplifies this financing strategy with a straightforward example, detailing the process, benefits, and key considerations for new wholesalers & real estate investors.
Transactional funding is a short-term loan specifically designed for real estate transactions involving a quick resale. It’s favored by real estate wholesalers and flippers who need immediate capital. For a foundational understanding, EMD Transactional Funding’s guide on transactional funding is an excellent starting point.
Let’s break down transactional funding using an easy-to-follow example:
Step 1: Identifying and Contracting a Property
Investor Sarah finds a property listed at $100,000.
Sarah spots a property with potential for a quick resale at a higher price. She agrees with the seller on a purchase price of $100,000.
Step 2: Securing Transactional Funding
Sarah applies for and obtains transactional funding.
Lacking the $100,000 to buy the property outright, Sarah applies for transactional funding. A lender agrees to loan the full purchase amount, set for repayment within a few days with an interest fee.
Step 3: Finding an End Buyer
Sarah finds a buyer willing to pay $120,000.
Before closing with the original seller, Sarah secures an end buyer who agrees to buy the property for $120,000.
Step 4: Completing the First Transaction (A-B)
Sarah uses the loan to purchase the property.
On the closing date, Sarah buys the property from the original seller using the transactional funds.
Step 5: Finalizing the Second Transaction (B-C)
Sarah immediately resells the property.
Shortly after purchasing it, Sarah sells the property to her end buyer for $120,000. She uses this amount to pay off the transactional loan, keeping the difference as profit.
Sarah’s profit is the selling price minus the purchase price and any associated transactional funding fees and closing costs.
Full Financing: Transactional funding often covers the entire purchase price, a significant advantage for new investors.
Fast Capital Access: It offers immediate funding, crucial for quick real estate deals.
Simplified Qualifications: Transactional loans focus on the deal’s potential, not the investor’s credit history, making them more accessible.
End Buyer Reliance: The success of transactional funding hinges on the end buyer fulfilling their purchase agreement.
Timing is Essential: These loans are short-term, emphasizing the need for timely transaction completion.
Understanding the Market: Beginners must have a solid grasp of real estate market trends to identify profitable deals.
For beginners eager to start:
Educational Foundation: Learning about real estate and transactional funding is crucial. BiggerPockets provides educational resources and community support.
Networking: Building connections with real estate professionals and potential buyers can pave the way for successful deals.
Choosing the Right Lender: Selecting a reputable lender is key. Platforms like EMD Transactional Funding specialize in transactional funding for real estate.
Transactional funding offers a promising avenue for beginners in real estate to make profits without hefty initial capital. While it presents opportunities, approaching it with thorough market understanding, strategic planning, and a clear grasp of the process is crucial. With the right approach, transactional funding can be a highly effective tool for newcomers to navigate the real estate investment landscape successfully.
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!
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