Transactional funding works by allowing an investor to purchase a property with no money of his own. The transactional funder uses his money as a loan to the investor for the original purchase of the property from the property owner. The property owner can be a homeowner, landlord or even a commercial property owner.
The investor does not need to have a stellar credit report to borrow money as he would if he borrowed from a bank. In fact, his credit report is meaningless since the transactional funding is relevant only to the purchase of a property where it has already been resold to an end-buyer who has cash to close and has wired in his full amount of his purchase price.
The end-buyer’s purchase price is obviously higher than the investor’s purchase price or there would be no profit and no transactional funding of the investor’s purchase. Profits on these deals can be in the thousands or hundreds of thousands of dollars – all happening within a few hours of the investor purchase and the investor’s sale.
Extended transactional funding is where the end-buyer didn’t get his money into the closing agent’s escrow account timely. This is a common occurrence with international wire transactions that take time to be scrutinized by the Federal Reserve and the TSA for money laundering issues.
It is suggested that if you know foreign monies are being wired for the closing that you inform your end-buyer to have his funds transferred to a domestic bank at least 72 hours in advance so they then can be wired into the closing agent’s escrow account.
There are transactional funding lenders that have what they call 30, 60 and 90 extended transactional funding. In actuality, these are hard money loans that have the additional burden of carrying costs in the form of interest payments. Even if the interest payment is made at the time the loan is paid off, this interest charge is what sets apart real transactional funding and so-called extended transactional funding.
Investors can usually get transactional funding from local hard money lenders. However, they can expect to pay more than shopping around for a private real estate lender who specializes in loaning transactional funds.