The Cost of Transactional funding

Wholesaling
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The Cost of Transactional funding

Isaac Blocher
Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes

Calling all wholesalers out there on BiggerPockets. I am just curious about how much you'll are paying for the transactional funding your getting when you do a deal. I have talked to some wholesalers who pay 12% for the money they use when closing a deal in one day. And I have talked to some wholesalers who are paying just 2% for the money they use when doing a one day deal. 

I would love to learn from everyone how much they pay for transactional funding and from what state they are located in. This information will help me understand this business better. Thank you

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Tim G.
Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
10y

The largest wholesale fee I've assigned was $48,000. I've got one in escrow currently for $30,000, buyers won't mind if they are making their desired profit and if they do care they are replaceable. If they weren't okay with this, couldn't you just perform a double close? That runs a couple grand, well unless this costs less than that.

Due to deed restrictions on most shortsales can someone even transfer title for 90 days on most after the initial close? I've not been able to in years, we just line up buyers and go the full length with them on the contract rather than play games. 

Another option is to be paid outside of escrow, this requires a second agreement and if you really don't trust the buyer a second escrow. This runs around $600 in California but we've done that twice. Once for a retail end buyer (worst idea ever trying to wholesale to them) and an MLS deal. In both cases this option worked well to guarantee us our payday without having to jump through hoops on transactional funding.

If anyone wants more info on how I've avoided the need to use funding just PM me, its insanely straightforward and keeps a much larger amount of the wholesale fee in your pockets.

Anyhow, thanks for clearing it up. I'm a full time wholesaler, mastermind with many other FT guys and gals and none of us have ever ran into these issues but we're mostly working with off market stuff. I've done two shortsales, never an REO but in my four years in the business I'd not ran into these issues.

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    Fairly typical is 1.75 pts. for a same day back-to-back transaction.  Some are at 2.0 pts. but rarely higher than that.

    2Reply
  • Bryan Wesley
    Winnipeg, Manitoba · Member since 2015 · 39 posts · 12 votes
    10y
    Paying 12% would wipe out most profit for me
    0Reply
  • Isaac Blocher
    OP
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y
    Bryan Wesley I know right! Killer, what are you paying if you don't mind sharing? Or you can PM me if you like!
    1Reply
  • Isaac Blocher
    OP
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y
    Ted Akers Thank you for Sharing!! That's what I have found to be the standard going rate. Did you pay any fees on top of that 2%? I know of a lender who charges a $500 fee on top of there 2%.
    0Reply
  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    10y

    What is the funding needed for? Wholesaling is when you assign a contract and never take ownership, or if you double close the end buyers funds are still what purchase the property for that brief moment when you close on it and then they close on it. 

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  • Suzanne Griffiths
    Investor · Hugo, MN · Member since 2016 · 208 posts · 68 votes
    10y
    12% or a day or two days isn't very much, $33 per day approx on $100k. Most charge points plus a fee instead since generally the longest you'll use the money is a week, could be up to 90 days depending on if the property has any resale restrictions.
    0Reply
  • Isaac Blocher
    OP
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y

    Thanks @Suzanne Griffiths very helpful info.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    10y
    Originally posted by @Suzanne Griffiths:

    12% or a day or two days isn't very much, $33 per day approx on $100k. Most charge points plus a fee instead since generally the longest you'll use the money is a week, could be up to 90 days depending on if the property has any resale restrictions.

     The OP is referring to transactional lenders charging 2 to 12% of the loan amount, not 12% interest on an annual basis.

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  • Tom Olson
    Property Manager · Gary, IN · Member since 2015 · 66 posts · 60 votes
    10y
    I have never heard of anyone paying 12 points (which this basically is) however I know people that do it as low as 1% (myself included) most places I see are 1-2% and most charge some paperwork fee. If you look up Cameron Dunlop there is a good program if anyone is interested (I have not used this program myself but one of my coaching students has.
    0Reply
  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 905 votes
    10y
    Shari Peterson might be able to offer some insight here.
    1Reply
  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    @Isaac Blocher

    Yes, I should have mentioned most charge fees of $395-$695.  I am a transactional funder and charge a fee of $495 with 1.75 pts.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Ted Akers  how do you secure the deals that you fund that take 30 to 90 days to pay off.

    do you then do a traditional HML ?

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    Hey @Jay Hinrichs,

    Sorry, I did just see your question on the other thread but can answer it here. I try to have as much as possible EMD (not standard EMD requiring a signature from the buyer but non-refundable or as a security deposit) from the end-buyer. That can be a challenge for the flipper to get, but unless the deal has a fair amount of equity I do not want to be the only one in the deal with funds at risk (transactional is usually looking for 100%). I rarely will do deals with typical $1-2K standard EMD.

    I also intentionally do not want to be a "lender" having to check each state for licensing requirements and possibly having to go through foreclosure time and expense. So, I provide equity capital under a type of JV Agreement with a Deed from the flipper held in escrow. A Deed held in escrow can be challenged if I were a lender, but I think less so under a JV structure.

    2Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Ted Akers  OK I got it.. you take title or an entity you have ownership has title .. and no loan is done.. I was wondering how you navigated that in the states that follow the Safe act and require licensing.

    I don't do this per say but I did just do one in GA.. but I took title then they bought it back 5 days later.. I just charged a flat fee and they got a discount on title and escrow services I found this to be quick and painless ,, and whats more Safe for me.. except if they never bought it back I end up owning some home in GA I never wanted in the first place.. LOL..

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    @Jay Hinrichs

    Very similar but we are just going at the same issue from slightly different angles. You may have slightly higher closing fees, but are well protected because you are in title initially. Same situation for me if the end-buyer does not close - I record the Deed held in escrow and own a property I never really wanted in the first place...LOL. I also validate my right to record the Deed by having a purchase option in the JV Agreement.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Ted Akers  got it.. since It was not my business model I just fast forwarded to your default position..

    I have a proctor insurance account so I can insure for monthly fee. so house was protected for the few days I owned it.  I think this works in cash deals to investors I would think with those trying to sell with mortgages .. there could be issues in multiple deeds being recorded back to back.. but again I don't know its not my day job...

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    Hey @Jay Hinrichs,

    Yes, you did fast forward; but in doing so provided yourself the ultimate protection.  Nice job protecting yourself.  From a transactional funding standpoint one consideration is avoiding transfer taxes where they are charged and if they are significant at all or not.  So the Deed in escrow avoids some costs but also takes another step to be as protected as you were.

    I was in the mortgage business for about 15 years, and multiple title transfers do catch the attention of underwriters - from back in the days of fraudulent flips with inflated appraisals.  A larger consideration for me when mortgages are required for the end-buyer is the general requirement for at least 90 days of title seasoning.  I used to do more deals with mortgages involved, but they are more challenging these days.

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    @Isaac Blocher,

    Sorry, I do not mean to be hijacking your thread here.  Jay's question started in another thread and I should have responded to it there.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Ted Akers  yes for instance this would not work well in WA with the excise tax of 1.78% or there about on title transfers.

    this was a low end deal in GA so it was a normal wholesaler approach I think the guy made 10k on the deal we made a few bucks and they absorbed the one closing costs and transfer tax which was probably nominal I would have to look at the hud.

    I can see this working in states were double escrows are not allowed any more... or if a wholesaler wanted to put to bed the thought that they are selling re without a license.. you know the wild wild west out there in that industry were basically anything goes   until it does not  LOL.

    I am NMLS mortgage banker sitting in the bullpen.. my license is on ICE but I do the CE.. just don't want to have to take the test again incase I want to jump back into doing HML.. so for right now taking title is a clear path.. no securities issues no licensing issues.. etc etc.. and 100% control. the only way I will do this these days.. but then again my clients are well known to me for more than a decade most of them and they are high volume flippers etc... so we have a lot going on...

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  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    10y

    @Jay Hinrichs

    That is a good business model and process to provide you the ultimate protection, and to avoid the time and expense of foreclosing.

    0Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    10y

    @Ted Akers yup I got a PHD in foreclosing from 2008 to 2010.. I ended up owning about 220 houses personally LOL.. and losing about 5 to 7 million in cash.. Ergo I am still working LOL.. just smarter this go around.... I will never lend again... its advisairial on its face.. we as HML take ALL the risk or 80 to 90% of it... borrowers who think 70% LTV is enough coverage for a HML have no clue.. plus they are thankless most of the time.. it becomes the bad lenders fault.. so to heck with those folks..

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  • Lisa Bryant
    Washington, DC · Member since 2016 · 94 posts · 43 votes
    10y

    Great conversation! It is good information for anyone who is considering transactional funding. Thank you.

    Learn, Apply, Produce!

    0Reply
  • Isaac Blocher
    OP
    Property Manager · Orlando, FL · Member since 2015 · 257 posts · 58 votes
    10y

    @Ted Akers What does EMD stand for? There are so money different terms.

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    10y

    Most likely you will see either flat fees or points.  Depending on the size of the deal probably 2-5 points.

    1Reply
  • Sean Cole
    Investor · Cincinnati, OH · Member since 2012 · 506 posts · 331 votes
    10y

    I pay a flat fee depending on the funding size, but up to about $250k it costs me no more than $1,000.  I know that's very cheap compared to what others on here are paying and I think it's for a few reasons:

    1.  Volume.  We'll do about 80 deals this year with our transactional lender.
    2.  Protection.  I've got several triggers in place that have to be met before the transactional lender wires their money on the day of closing.  The net effect is that the money is out for less than 30 minutes in almost all cases (exception would be end of month when the title company has in influx of deals, but we're also in an ABA with them so we tend to get taken care of very quickly even during those times).
    3.  Experience.  This is what makes #1 possible and how I devised the triggers in #2.  If I was a newbie, I wouldn't have the volume or the wherewithal to protect the lender's money the way we do.

    We have a couple of groups that are trying to gain our business and have offered to cut rates below what we're currently paying.  I don't foresee us switching. as our current lender is highly responsive and the folks vying for our business can't save us all that much money given our current costs anyway.

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