When to use Transactional funding

Question

just read this article http://m.huffpost.com/us/entry/7021138

It says I'm going to pay $2k to $5k for use of the funds for a double close? Doesn't that seem really expensive? When would these funds be needed? Can't we Double close with the buyer funds?

Ted Akers · Answer

@Jeff Fairchild

Transactional funding (or other funding) has become required for short sales, as closing agents no longer consider using "C's" funds to close on those purchases.  The concerns of title underwriters that Account Closed mentioned have also resulted in most title companies not being willing to close other types of transactions with the end-buyers funds.  REO's have also  increasingly been approved with restrictions on assignments.  While there still may be situations where a closing agent will allow use of "C's" funds those old days have been disappearing over the past 2-3 years.  While there are situations where the use of end buyers funds are still allowed, transactional funding has been becoming a more relevant tool for more types of transactions.  As mentioned, it also has the benefit of not having to disclose your profit margin to the end-buyer.  Fees are more typically a bit below 2.0% and at times when needed are a reasonable cost of doing business.  Good Luck.

Account Closed · Answer

Transactional Funding is a cost of doing business.  Just factor it in.  As Don Harris said above, 2 points is typical (and pretty darn reasonable).

Can you use C's funds to fund purchase from A?  In the good old days, that's what we did.  However, after all the abuse occurred in the mid-2000's, lawsuits started flying.  Attorneys I have consulted have told me there is no law against it.  However, underwriters don't want to do it any more because of the exposure referenced above.

Ways still exist to do it, but the explanation is too long to discuss here.  Like I said above, just consider TF a cost of doing business and factor it into your deal.

Darrell Shepherd · Answer

A lot depends on your deal.  I've done them a few times and didn't charge 2%.  But it was private stuff.  Lots of regulation and licensing involved to run that kinda thing like a real business, especially if you are going into multiple states.  Plus, there's due diligence and risk and such.  Very first one I did I had to stay in and do the rehab because Freddie Mac slipped in a deed restriction the title company didn't catch until we went to do the second closing (they weren't same day, I was doing the loan and the lender was dragging their ass so I funded it for my borrower)

You used to be able to double close, but its limited nowadays.  You can do an assignment of contract (depending on the contract), but your profit is going to be on the HUD-1.  Depends a lot on how much you want to make and how you want to run your business.  Wholesalers now have unrealistic expectations because of the gurus pitch their best deals as normal IMO, but who am I to judge?

I get the same thing on the Hard Money I broker.  2.5% and 10-12% is unreasonable so they go and do a $50k deal with cash instead of a $250k deal leveraged and make 1/3 of the money with the same amount of time and effort.  Lots of people bad at math in this country.

Anyway, run your deal, check your options, shop your lender, etc.  Know your business, tranactional funding is just a tool, it doesn't have to be used on every deal, but it has a time and a place and you want it in your toolbox.

Don Harris · Answer

@Jeff Fairchild expensive? $2k - $5k, it's all relative.  If Transactional funding is 2 points in fees then that would equate to $100,000 to $250,000 in transactional funding.

(If the home were $25k or $50k then 2 points would be $500 or $1,000)

I think the wholesaler who closes on his purchase ( A to B) then sells to his buyer (B to C) adds a great deal of credibility to his transaction. 1. He proves he is a cash buyer (even if he is using my cash) 2. Professional closing ....should create a insurable and marketable title transfer 3. Overall peace of mind from the "C" investor that the transaction is handled legally.

A benefit to the wholesaler is that the profit on the deal is not disclosed and not material.

Expensive, it all depends on how you view it. Just bake it into the deal when you are calculating the margin you need to make on the transaction.

When to use Transactional funding

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