Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
I'd love of explanation of what this is. I may be in position to investigate this opportunity and would appreciate some info from folks that have actually been involved in it. Can it be a win-win-win for everyone and can I make some money doing it? Thanks in advance. Rich.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
17y
Rich-
I've never lended but I have borrowed using this method.
Transactional lending is used for a double close. The double close is required when dealing with bank either in a short sale or REO. You would lend the money on the A-B transaction between the bank and the investor.
Typical lender lends at 2% of the purchase plus $250 for "paperwork". Most lenders require a minimum $2500 to do business. You would lend your money for 24-72 hours, then be repaid once the B-C side of the transaction is completed. They lend 100% of the A-B side.
My lender requires:
A-B Contract
B-C Contract
Approval letter from the bank
Insurance on the property
Once I send him that, he okays the funds to the title company. He lends with a 72 hour notice.
The promissory note is written such that I do not incur any penalites if the funds are wired back within 72 hours. After 72 hours it is 18% interest rate.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
17y
Rich-
I've never lended but I have borrowed using this method.
Transactional lending is used for a double close. The double close is required when dealing with bank either in a short sale or REO. You would lend the money on the A-B transaction between the bank and the investor.
Typical lender lends at 2% of the purchase plus $250 for "paperwork". Most lenders require a minimum $2500 to do business. You would lend your money for 24-72 hours, then be repaid once the B-C side of the transaction is completed. They lend 100% of the A-B side.
My lender requires:
A-B Contract
B-C Contract
Approval letter from the bank
Insurance on the property
Once I send him that, he okays the funds to the title company. He lends with a 72 hour notice.
The promissory note is written such that I do not incur any penalites if the funds are wired back within 72 hours. After 72 hours it is 18% interest rate.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
17y
I am interested in transactional funding too...from the lending side. Trying to learn some more about it as there seems to be alot of misunderstanding about it.
Just as I used the term lender, other people talk about lending and promissory notes, etc; but my understanding is that true transactional funding is not a loan at all. (possibly this is why usury laws don't seem to apply).
It appears that the deal is essentially set up between the transactional funder and the title company, not really a loan to the investor (B). The agreement basically says the funder will provide the cash for the A-B transaction contingent on the B-C transaction taking place.
If the B-C transaction were to fall apart for some reason, the title company would actually nullify the previous A-B transaction.
So, there is no promissory note, no collateral, no interest rate, no contingency set up for what happens if the "loan" doesn't get paid back. Therefore, it is not really a loan and the money is never actually "at risk" from the funder's standpoint.
Which leads me to think 2 things. 1. Transactional Funders are ridiculously overcharging based on the risk-free nature of the transaction.
and 2. Sounds like a great business for me to be in.
Residential Real Estate Broker · Payson, AZ · Member since 2009 · 3k+ posts · 1k+ votes
17y
Eric, you are completely right!
no one ever actually touches your money so it's a great business to be in. Will and I are chatting about creating our own transactional funding company early next year. I'd like to do it out of a self directed retirement account and I know he's the one I'd want to partner with on that.
The fees range and vary but it's great to put up the money and no one ever touches it and it's secure by the B-C side literally 24-48hrs
I'm also considering becoming a HML out of a SDRP but I think Will can talk me out of that pretty easily considering the lack of risk involved with transactional funding.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
17y
Justin, Nick, Will and others- If someone is interested in making these types of loans, I realize the term is very short. A matter of hours. The fee for 2-3 days might be a couple or few poits, then it is over.
If the lender wanted to committ hundreds of thousands to this, how often would the money be out at work and how often would it be sitting in a stupid bank at 1,5% apr?
The high interest looks good in a snapshot way, but not so much if it is only at work a couple days every month or two. What do the needs look like? Thanks. Rich in FL.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
17y
Justin, Nick, Will and others- If someone is interested in making these types of loans, I realize the term is very short. A matter of hours. The fee for 2-3 days might be a couple or few poits, then it is over.
If the lender wanted to committ hundreds of thousands to this, how often would the money be out at work and how often would it be sitting in a stupid bank at 1,5% apr?
The high interest looks good in a snapshot way, but not so much if it is only at work a couple days every month or two. What do the needs look like? Thanks. Rich in FL.
Rich, right now I have around 20 properties between myself and my clients that would require lending. I don't know the total lending amount but it would be near 2-3 million. That would net the lender anywhere from 40-60K. If I were a lender though, I would not only focus on finding customers (like myself) but also contacting title companies and letting them know you lend. That is where you'll get most business. Title companies have preferred lenders for these types of transactions, so once you get in good with a few of those, then your money should be at work quite a bit.
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
17y
Justin- Any way to stagger those loans so that one could close right after the other? What I want to know is the down time on the money. If I devoted 1 mil to something like this, how many 2-3 day sessions could the money be at work in a 30 day period in your opinion?
Here in FL, attorneys like to do the closings. I'm not in contact with any of them. Tx and CA, and AZ would be different. Please reply. Rich.
Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
17y
You could stagger them and they usually are. Short sale are at the mercy of the bank, so it is hard to predict when they will give approval but you typically have 30 days to close. So staggering could be accomplished. If you have had a good relationship with a few title companies, I would imagine you could lend out a million a month which would get you $20,000. With time, it would probably grow to more. I know several newb's on bigger pockets were looking for transactional funding on their deals. I have no problem letting the title companies I work with know you are able and willing to lend on short sales.
To answer your question, with a little advertising and help from your friends, I would think you could do at least one deal every week but I do not think you'll need the entire 1,000,000. In AZ most house are going for 50K-200K. Obviously in CA that is higher and other states lower. I think $500K would be enough then once you figure out your turnover rate you can adjust your account and put your other money to work.
Real Estate Lender · East Longmeadow, MA · Member since 2009 · 176 posts · 21 votes
17y
Gentlemen, I work with a lender who regularly funds Transactional Loans in all 50 states. As long as the parties are ready and the documents provided, this lender will fund with no limitations on the number of closings.
Real Estate Investor · Dayton, OH · Member since 2009 · 145 posts · 35 votes
17y
There is a guy out there who actually raised my brow about transactional financing, I had no idea it even existed until about 4 days ago. I go to his site not knowing what he was "selling". Watched the longest web vid in the history of web vids. Then right at the end this guy goes I'll do this (transactional funding) for a $2,000 membership fee. Is this typical of Transactional lenders? If not are there any out there that just do the funding and only charge for that. I don't want to pay $2,000 up front before my transaction is even complete, you know?
Real Estate Consultant · San Francisco, CA · Member since 2009 · 94 posts · 28 votes
17y
Originally posted by nmbr1wholesaler:
There is a guy out there who actually raised my brow about transactional financing, I had no idea it even existed until about 4 days ago. I go to his site not knowing what he was "selling". Watched the longest web vid in the history of web vids. Then right at the end this guy goes I'll do this (transactional funding) for a $2,000 membership fee. Is this typical of Transactional lenders? If not are there any out there that just do the funding and only charge for that. I don't want to pay $2,000 up front before my transaction is even complete, you know?
There are many out there that don"t charge upfront fees,
just so you can make them money. :cool:
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
17y
To be completely clear- I want to make an EXORBITANT rate if I loan you money on a transaction. I'll charge you nothing up front and take profits at close. That should be clear. Oh, and unlike some posters, I actually have the money to loan... RICH in Fl.
Real Estate Consultant · San Francisco, CA · Member since 2009 · 94 posts · 28 votes
17y
Originally posted by Rich Weese:
To be completely clear- I want to make an EXORBITANT rate if I loan you money on a transaction. I'll charge you nothing up front and take profits at close. That should be clear. Oh, and unlike some posters, I actually have the money to loan... RICH in Fl.
Hopefully you won"t charge more points than "the ones that do have the money ".
Look"s like many investors want to do business with you on BP . :mrgreen:
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
17y
I signed a promissory note and was required to have hazard insurance on the last deal I did.
That is interesting. That is not how I thought true transactional lending worked. What were the "terms" of the Promissory Note? Not rates but what if the B-C transactional fails? How does the loan get paid back? What happens if you fail to pay back? What was the collateral, if any?
Did the funder wire the money to you or the title company directly?
My impression is that true transactional funding is done directly between the funder and the title company and the investor never has the cash, so not sure why a promissory note would be needed.
Rich, I think you are on the right track. The key is not necessarily how much money you have to lend but how often you lend it.