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Updated almost 12 years ago on . Most recent reply

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James Maddox
  • Louisville, KY
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Question Regarding Transactional Funding

James Maddox
  • Louisville, KY
Posted

Can someone explain the concept of transactional funding to me? I understand it's used for wholesaling and is for short periods of time but where do the funds come from? How do you acquire transactional funding?

P.S. I've searched the BP forums (admittedly not that well) and couldn't find a direct answer

Thanks!

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Ted Akers
  • Centennial, CO
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Ted Akers
  • Centennial, CO
Replied

Hi James,
Transactional Funders tend to specialize in transactional funding as opposed to other types of lending, such as hard money lending. It is more of a "providing of liquidity" function than traditional lending. My website will provide you a fair amount of detail as to what transactional funding is and how it works, and there are other transactional funders here on BP. The basic premeise is that a flipper/wholesaler has a property both under contract to purchase and also under contract to resale to an end-buyer. Transactional funding typically provides 100% of your purchase price subject to your end-buyer having funds at closing or an approved mortgage for their purchase.

The business has historically been based on a back-to-back or same-day closing but some transactional funders are also now doing "Extended Term Transactional Funding" when a bank imposes holding period requirements on you as the buyer or when an end-buyer may need more time for a mortgage. In the mortgage situation you want to be aware that funders typically look for a larger than normal non-refundable security deposit or liquidated damages from the end buyer because we base our funding on the liklihood of that end buyer closing (due to the fact that we do not have a large equity cushion like hard money lenders funding around 65% of the deal).