Transactional Funding

What is transactional funding? and when would it ever be used?

Transactional funding is hard money typically used by a real estate investor for same-day closings, also known as flash cash, back to back funding, or bridge loans.

There was a time when investors used to do simultaneous closings, but those are no longer allowed.

The benefit of doing a "simultaneous" or "same day" closing is that the end-buyer is unaware of the price the investor paid to purchase the property.

This type of closing was typically used when a wholesale investor got an off-market property under contract for a low price from a Seller. The wholesaler would then add in his assignment fee, and offer the property for sale to a rehabber or end-buyer for a larger price that included his assignment fee or profit.

If the profit was large, the wholesaler might not want to disclose to either the Seller or the end-Buyer their contractual purchase price. A simultaneous closing (in the good ol' days) would allow the investor to close on the property without using any of their own funds, as they would close that same day using the funds that the end-Buyer had wired into escrow.

When simultaneous closings are not allowed, transactional funding fulfills the same purpose: it allows a real estate investor to close on a property and re-sell it within 24 hours to another buyer at a much higher price. Transactional funding may be used to cover the investor's out-of-pocket cash closing costs.

An investor might also use transactional funding, if the end Buyer is using conventional financing, and must be listed on the purchase and sale agreement.

Transactional funding is hard money, and it is typically lent by professional money lenders. Here is a good link to a transactional funder used by Robyn Thompson students that explains the process fairly well.

So while a transactional funder may provide free Proof of Funds letters, they will typically charge points, fees or a high interest rate on a transactional loan. Be sure to ask about details, and how interest charges are computed.

Happy Investing!

Bird Dog Property Information Sheet

Here is a sample work sheet that "bird dogs," people finding property for an investor like me, might use to identify properties worth purchasing as fixers:

Birddog Property Worksheet

Rep: ______________________        Date ______________________    Picture #  _____________________

Owner: ____________________________________________       Phone: ___________________________

Property Address: _________________________________________________________________________

                                                                                                                                       

  County: _______________ Neighborhood _______________   # to Lf ______________  # to Rt ___________

                                                                                                           If address unknown:  when facing the property

Bedrooms _________     Baths __________  SqFt ___________   |    Vacant ____  Occupied ______    

Construction:  Frame: ____  Brick: ____  Stucco: ____  Block: ____  Other: _________    

Listed?   Yes / No   Agent: _____________________________________________________________

	Inspection	Y	N	Costs (avg 1200 sqft home)	Repair Cost	ARV
1.	Does house need Roof			$ 2,500 avg
2.	Does house need Paint – Exterior			$ 1,000 for 1200 sqft
3.	Does house need Carpet / Linoleum			$ 1.7 per SqFt		x 70%
4.	Does house need Paint – Interior			$ 1.5 per sq foot
5.	Does house need Central A/C			$ 3,000 to add
6.	Does Kitchen need replacing			$ 1,500 avg		Minus Repairs
7.	Do Baths need replacing			$ 1,000 avg each  x _______
8.	Does house need Plumbing			$ 1,500 avg
9.	Do Windows/Doors need replacing			$ 150 ea installed  x _______		Equals Sales Price
10.	Does house have a lot of rotten wood			$ 500 avg
11.	Does Electric need upgrading			$ 1,500 new box
12.	Does garage door need replacing			$ 350 single $700 dbl		Minus Profit
13.	Foundation Problems			$ 500 avg
14.	Exterior Siding			$ 3,000 avg
15.	Sheet rock Need Replacing			$ 500 per room  x _______		MBP: Buy Price
16.
17.
18.						Asking Price
19	Misc/Add in margin of error			20% of sub-total
				Total $

Existing Mortgage Info

1^st $ _______________ Lender _____________________ FHA/VA/Conv   ______% Pmt $ ___________  PITI?

2^nd $ _______________ Lender ___________________________               ______% Pmt $ ____________

Payments Current?  _____ Yes  ______ No                $ ________________________ in arrears     

Will you sell the property for what you owe on it?  ______ Yes   _______ No

Notes/Offers:_____________________________________________________________________________

            __________________________________________________________________________________

__________________________________________________________________________________

            __________________________________________________________________________________

            __________________________________________________________________________________

__________________________________________________________________________________

            Happy Investing!!!

Wholesale Pricing

A wholesaler is an investor who finds and buys properties at a low price and sells it at a low price, typically to a rehabber who will actually do the remodel necessary to sell the house later at full retail value (“After Repair Value” or ARV in investor jargon). The wholesaler usually builds in a small profit for himself for finding and acquiring the property.



How much should a wholesaler charge another investor to purchase the property over and above the price that the wholesaler was able to negotiate with the Seller?



Most typically, a wholesaler will charge anywhere from $5000 to $10,000 to sell his contract to purchase the property to another investor. But this can vary significantly, depending on the location and condition of the property being purchased, and especially the terms that the wholesaler was able to negotiate.



Some wholesalers I know calculate the profit that they anticipate in the property when fixed up, and charge up to 50% of that amount to another investor. This, of course, assumes that there is quite a bit of profit built into the deal.



Some wholesalers who are new to investing might also look for an equity partner to help them learn about fixing a property for the market. They may not have a construction team in place, or may not know how to market the finished product to traditional buyers. They may partner for 50% of profits, where the wholesaler does all the work and puts up all the funds, under the guidance of a more experienced real estate investor.



However the wholesaler prices his fee, he should keep in mind that the investor buyer may want to negotiate further on price. This often means cutting into the assignment fee that the wholesaler was going to charge. So it is a good idea for a wholesaler to build a bit of room for negotiation into his/her fee.



Some new investors may not feel comfortable getting a property under contract, because they are still unsure about pricing or fix-up costs. In this case, they may want to partner with a trusted investor, who will simply pay them for the lead and handle the negotiations related to the purchase of the property.



They may want to joint venture with a more seasoned investor, where the new investor finds the property, puts up the funds, and lets the seasoned investor handle negotiations, rehab, marketing, and sale to an end buyer.



In the course of searching for investment properties, the wholesaler will come into contact with many motivated sellers who want full retail price for their property. This usually won’t work for an investor, but would be perfect to refer to their favorite real estate broker.



If the wholesaler does not have a real estate license, she cannot be paid a percentage of the commission on the sale of a property referred for a listing. The Department of Licensing describes the practice of promising to pay a gift to an unlicensed person as unlawful under Washington law. Referral fee payments to unlicensed individuals or entities can jeopardize the broker’s real estate license.



The law does allow for a wholesaler or anyone without a license to be paid a fee for referring leads, whether or not these result in a transaction. In fact, many of these leads will not turn into a listing agreement or a closed transaction for the real estate broker, so the broker cannot pay a lot of money for these leads.



I typically pay around $100 for these kinds of leads, and a bonus if the wholesaler is consistently sending me leads that turn into listings and closed transactions. As additional incentive, I will provide NWMLS access to people generating leads for my business, but not every real estate broker will do this. Look for ones that understand investors and working with wholesalers.



This is a great option for wholesalers to be making money from leads that do not result in investment deals for them to assign to other investors or cash buyers. So wholesalers, make money with most all of your leads, and


Happy Investing!

Building a Cash Buyer List

A professional wholesaler does NOT depend on "finding" a buyer to make a profit on a particular property. Instead, he works hard to identify potential buyers before he's ever found a property to sell to them. By networking with investors and rehabbers, he learns who's a cash buyer, what areas and types of properties they're looking for, what their exit strategies might be, what their requirements and pet peeves are, and how fast they can close. He gathers this information and keeps it where he can get to it when he needs it - that is, when he has a deal to sell them. By having a list of potential buyers, and knowing it well, you'll know to whom the property will probably sell before you even get it under contract. At that point, it's simply a matter of calling the right people until you get the answer you want.

Occasionally, matters conspire to put you in a position of having a great deal - but no buyer - despite your best efforts. This is where your real estate education comes into play. If you have the knowledge and resources to get these properties purchased and/or for getting your closing date delayed, you can still make these deals fly.

Tools you might use include a partner or private lender who can come up with the cash to close very quickly. Once you own the property, your exit strategies are no longer limited to a quick flip; you could retail the property or offer it for sale with owner financing. Another strategy might be to negotiate short-term seller financing or a "split funds" deal where you pay part of the purchase price now and part in 90 days. In wholesaling, as in the rest of the real estate business, knowledge is the key to profits.

Happy Investing!


Reprinted from the Real Deal, a monthly newsletter for Real Life Real Estate Investors with permission of Vena Jones-Cox. Get a free 3-month trial subscription by logging onto www.regoddess.com. One per household, please.