What is Transactional Funding?

Transactional funding is a financial strategy utilized in real estate transactions where investors aim to acquire a property with the intention of reselling it quickly for a profit. This funding option provides a short-term capital solution, enabling investors to close deals without using their own funds. In this knowledge base article, we will explore the ins and outs of transactional funding and shed light on how it works.

What is Transactional Funding?

Transactional funding, also known as “flash funding” or “same-day funding,” is a form of short-term financing used exclusively for real estate transactions. It involves two sequential closings: the “A-B” transaction and the “B-C” transaction.

The “A-B” transaction refers to the initial purchase of the property by the investor (“A”) from the seller (“B”). The purpose of this transaction is to acquire the property temporarily before immediately reselling it in the “B-C” transaction. The “B-C” transaction involves selling the property to an end buyer (“C”) at a higher price, usually on the same day or within a few days.

How Does Transactional Funding Work?

Here is a step-by-step breakdown of how transactional funding typically works:

  1. Identify a Profitable Real Estate Opportunity: As an investor, you find a property that presents a lucrative opportunity for a quick turnaround profit.
  1. Submit Opportunity for Funding: Once you have identified a potential deal, use the Transactional Funding Request to submit the property’s details, including the property’s Assessor Parcel Number (APN), the requested amount for the “A-B” transaction, and the title company or attorney’s office closing the transacation.
  1. Lender Review and Confirmation: The transactional funding provider reviews your opportunity and assesses its viability. They will determine whether you will receive the necessary funding within a specified timeframe, often within 48 hours.
  1. Closing the “A-B” Transaction: Upon confirmation of funding, the transactional funding provider generates all the necessary legal documents required for the transaction. They also coordinate with the title company involved in the transaction to introduce themselves and explain the process. At the closing of the “A-B” transaction, you, as the investor, sign a Promissory Note and Mortgage. However, as per the instructions, the title company will not release the funds to the seller until the end buyer from the “B-C” transaction deposits their funds into escrow.
  1. Closing the “B-C” Transaction: Once the “B-C” transaction is closed, the title company uses a Payoff Demand Letter provided by the transactional funding provider to reimburse the borrowed funds and fees directly to them. Additionally, they use a Release of Mortgage document to clear any liens on the property, ensuring a clean transfer to the end buyer.
  1. Get Paid: The title company disburses the remaining profits from the transaction to you, the investor, on the same day the borrowed funds are repaid.

Advantages of Transactional Funding

Transactional funding offers several advantages for real estate investors, including:

Access to Quick Capital: Transactional funding allows investors to close deals without using their own funds. This eliminates the need to tie up personal capital or secure traditional financing, enabling investors to take advantage of time-sensitive opportunities.

High Profit Potential: By leveraging transactional funding, investors can participate in real estate deals with significant profit potential. Quick turnarounds and favorable market conditions can lead to substantial returns on investment.

Limited Risk Exposure: Since transactional funding is designed for short-term transactions, the investor’s risk exposure is generally limited to the period between the “A-B” and “B-C” transactions. This reduces the potential risks associated with long

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