Transactional funding is the process where funds are borrowed and used to purchase various types of commodities that usually will be resold the same day. In our use as real estate investors, the best transactional funding is when we borrow money for a few hours to purchase a property that we have already resold to an end-buyer.
Transactional funding is money that is wired into a closing agent or attorney who will be closing a double transaction – the purchase and then the sale of the same property preferably the same day. It is critical that any monies supplied by the transactional funder and the end-buyer be deposited into the closing agent’s escrow account from wired monies only.
The importance of wired monies can’t be stressed enough because counterfeit money orders and cashier’s checks are easy to make with high quality copies available to the public. No actual cash money is allowed for buying properties as closing agents do not want to be responsible for holding cash and having to make the bank deposit.
The reason is the person making the cash deposit must give their social security number if they don’t have an account. If they have an account, their social security number is on file and the deposit is reported to the Internal Revenue Service (IRS) as a counter-measure for money laundering.
Transactional funding allows real estate investors to do purchases and sales without the use of their own money. This is a giant benefit to beginning investors who have no money of their own to invest. The transactional funding lender only needs to review the closing statements for both the purchase and the sale of the property and know that the end-buyer’s funds are “cleared” and are in the closing agent’s escrow account.
Once the transactional funding lender is satisfied that the buyer and seller are ready to close (money in the escrow account) and there is a profit for the investor, he authorizes the closing to go forward. This closing can take from 30 minutes to many hours if there are problems that have to be resolved at the closing table.
Once the original seller has signed all his closing documents, the investor has signed his seller’s documents and his end-buyer’s documents, the transactional funder’s money will be used to fund the first closing and the second closing with be funded with the end-buyer’s money all within a few minutes. Lastly, the transactional funder’s money will be wired back to his bank account usually the same day