Transactional Funding: ins and outs, ups and downs, seeking advice & insight!
Hi Y'all:
I'm exploring the possibility of getting into Transactional Funding and would love to hear your experiences from both the lender and borrower perspective. I've done some preliminary due diligence (as the lender) and feel I have a pretty firm understanding of how it works. Being that I'm new to it, though, I'd appreciate hearing unique experiences from anyone with valuable information to share.
Thanks! :)
Hey Jennie, are you getting into it from the position of being able to offer this service to those who need it, or more as in a way to structure your deals?
I ran a large wholesaling company for many years and we only used transactional funding. Now as a lender, we offer it as a service.
I have always felt using it has many advantages. The verbiage on the contract, concealing your NET, being able to truly purchase with cash..... but most importantly, I am a firm believer that more legislation will come in (Oklahoma, Illinois, NJ) are examples - and assignments will one day be banned, especially for those non-licensed.
At this point i think the need for transactional funding will explode.
Most lenders don't seem to like doing them, I on the other hand love them. We help the wholesaler and establish a great connection and in turn they start bringing us deals & borrowers.
Hi @Joe Davis, thanks so much for your reply! I could have been clearer in my post. :) I'm looking to get into lending to those who need it. Would you be willing to share what you charge for your transactional funding loans? And are they all for same day double closes? Or do you offer this type of funding on a transaction that could potentially take a few days, or even a week or two?
Quote from @Jennie Berger:If it’s going to be more than the one day loan we actually structure it the same as a regular hard money loan.
Hi @Joe Davis, thanks so much for your reply! I could have been clearer in my post. :) I'm looking to get into lending to those who need it. Would you be willing to share what you charge for your transactional funding loans? And are they all for same day double closes? Or do you offer this type of funding on a transaction that could potentially take a few days, or even a week or two?
if it’s a true double close, process is super simple. We charge 1% of the frontside wire fee with no additional Cost. We set a $1k minimum for properties that need less than $100k wire.
We can turn them around in just a days notice, we’ve actually had wholesalers come to us day of close because an issue popped up with contract verbiage or $ disclosure etc.
I concur with @Joe Davis and do the same with my company, however I refer other loan types outside of Transactional Funding loans to others. Only difference is that California I have 1.5% or $1500 min vs every state as Joe mentioned is the same.
How do you protect your investment with transactional funding? From my research, it seems that the best way is to ensure the end buyer's funds are at title in escrow (with the clear to close) before you approve the release of your funds. I imagine you also ensure the amount you're lending is less than the ARV of the property. Are you researching this yourself or asking your borrower to provide documentation to support this?
It would seem like a promissory note and recorded lien might not be necessary in cases where the transaction funds in the same day. Am I mistaken?
What percentage of your loans would you estimate for the transactional funding to occur on the same day, at the same title company, where end buyer's funds are in escrow?
I appreciate all your insight!
Quote from @Jennie Berger:
How do you protect your investment with transactional funding? From my research, it seems that the best way is to ensure the end buyer's funds are at title in escrow (with the clear to close) before you approve the release of your funds. I imagine you also ensure the amount you're lending is less than the ARV of the property. Are you researching this yourself or asking your borrower to provide documentation to support this?
It would seem like a promissory note and recorded lien might not be necessary in cases where the transaction funds in the same day. Am I mistaken?
What percentage of your loans would you estimate for the transactional funding to occur on the same day, at the same title company, where end buyer's funds are in escrow?
I appreciate all your insight!
1) We make sure backside funds are confirmed at title before we initiate frontside wire.
2) Our agreement that we get the wholesaler to sign essentially would allow us to secure a loan against the property if for whatever reason there was an issue (as never happened).
3) We generally insist that both the A-B and the B-C contract are at the same title company. Not saying it can't be done at two separate title co's but it's a pain.....and I wouldn't recommend it just starting out.
99% identical to Joe above, only difference is we use loan docs vs an agreement with wholesaler. We don't have them recorded, just signed as another layer of protection. However, i'll likely be looking at additional ways down the road to be even more secure for a backup what if scenario.
Thank you both so much for your insight. Seems like a pretty straightforward way to do business. Minimal risk. How do y'all find your clients in need of this type of funding? @Jesse LeBlanc @Joe Davis
Quote from @Jennie Berger:
Thank you both so much for your insight. Seems like a pretty straightforward way to do business. Minimal risk. How do y'all find your clients in need of this type of funding? @Jesse LeBlanc @Joe Davis
A LOT of marketing & referrals. Non stop action taking and never giving up plus always making sure we give our absolute best to clients and always reply never making anyone wait and go to a competitor :)
I have Ads, I have a lot of social media posts and updates on all social media platforms daily. I am constantly reaching out to provide value to other wholesalers out there and in turn others see my company name. I work with a lot of other real estate related businesses and closing teams that refer business to us. We have blogs and articles out there working for us. CONSTANT non stop SEO.
Quote from @Jesse LeBlanc:
Quote from @Jennie Berger:
Thank you both so much for your insight. Seems like a pretty straightforward way to do business. Minimal risk. How do y'all find your clients in need of this type of funding? @Jesse LeBlanc @Joe Davis
A LOT of marketing & referrals. Non stop action taking and never giving up plus always making sure we give our absolute best to clients and always reply never making anyone wait and go to a competitor :)
I have Ads, I have a lot of social media posts and updates on all social media platforms daily. I am constantly reaching out to provide value to other wholesalers out there and in turn others see my company name. I work with a lot of other real estate related businesses and closing teams that refer business to us. We have blogs and articles out there working for us. CONSTANT non stop SEO.
Amazing. Sounds like you have a great system in place. Thanks (again) for sharing and being so forthcoming with your strategies! I believe transparency and integrity are the foundations of any good business, and it's refreshing to see others are aligned with that mindset and practice as well. The BEST lenders I have ever worked with (as a borrower) are, as you say, quick to respond, reliable, honest, and never leave me hanging.
I fire clients regularly. I CANNOT stand when someone isn't transparent and or tries to hide anything from me. That is usually the last time I work with them. ANY client that is like that to others will likely be the same way to you at some point. So I steer clear of them and instruct my team to pass those people along to me to handle.
I also have nothing more than my word and all of our 80+ all 5 star reviews. Anything less than that is either because the client never clearly understood the loan type we offer or something we did wrong. Only the first can be corrected, but us making a mistake and getting anything less than 5 star review is stricly unacceptable in my eyes and my team also has a strong sense of ownership in their position and loyalty to my company. I always make sure to help the team but also support them while giving them room to make the position theirs, get them to realize they are part of the company, not just an employee. I make sure that they help in creating new systems and processes, always asking for their advice.
I'm a leader, not a boss, but they see and hear far more than I do so I'd be an idiot not to listen to my team.
I think as you grow and expand, you too will do the same whether as a Transactional Lender or anything else you do. Sounds like you have a badass mindset and exactly what you need to succeed! :)
@Jesse LeBlanc are virtual hugs permitted here on BP? :D Thanks so much for the kind words. Love your business philosophy!
