One of our more popular programs is our Transactional Funding program. Here’s how Transactional Funding works. There are three parties in an “A to B, B to C” transaction. Actually, there are 2 transactions that are happening in tandem. The parties are:
A: A person that is willing to sell their home, usually in a distressed situation, to a wholesaler (B).
B: A Wholesaler hunts for people willing to sell their homes, but they don’t have the money to close typically. They enter into a contract with A to purchase their home.
C: An End buyer for the home.
Contract A-B: B enters into a contract to purchase a home from A for one price, let’s say $100,000 for purposes of this example. B puts down a deposit, let’s say $5000 for this example, and, per the contract, they have a period of time, let’s say 30 days for this example, prior to closing.
Contract B-C: During the due diligence period for Contract A-B, B enters into a contract to sell the home to C for more than the A-B Contract…let’s say for $120,000. The closing is scheduled to close on the same day as the A-B contract. B requires that C put down a significant, non-refundable deposit…let’s say they agree to 25% down for the purposes of this example.
B intends to walk away with the $20,000 difference minus their costs, but they need the cash to close on the A-B transaction. They usually can’t, by law, use C’s money for that A-B closing. To do this, they turn to a Transactional Funder.
The Transactional Funder wires in the money to close the A-B transaction for B. The Transactional Funder’s funds are returned to them later that day or the next day from the title company plus a funding fee…usually 1% – 3% for the use of their funds for that short, 24-hour period of time.
In order to this, the Transactional Funder (TF) requires:
- An insured closing with the same title agent, perhaps someone the TF chooses.
- An analysis of the subject property
- Both contracts to review
- A mortgage contract with B for the property during the A-B transaction.
- A significant, non-refundable deposit from C that will go to the TF along with the subject property should the 2nd transaction not close.
Transactional Funding is not well-known, but it’s certainly one of our favorite programs. Let’s discuss how we can scale your wholesaling business today with Transactional Funding!