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

    @Sean Cole  boy that's a good deal no other fee's or costs.. I know I would not want to do 80 deals in an year for a whopping 80k... seems like a low returns for them.. granted apr is spectacular but then again you need those funds liquid so your drag on funds ( from lender perspective ) can be pretty great.. But this keeps you legal in OHIO as a wholesaler so I commend you for adhereing to the laws instead of trying to skirt them.

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  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 905 votes
    10y

    @Isaac Blocher, EMD stands for Earnest Money Deposit.

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

    @Ian Walsh Thank you! I am trying to learn as much as I possibly can before I start doing this kind of lending. 

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

    @Jay Hinrichs my understanding is that the lender uses their own LOC for this business so there really isn't a liquidity need (other than having the available room on the LOC)

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

    @Sean Cole  I like that,  that works... cost of capital for a day is probably next to nothing.

    ITs how I ran my HML shops we lent the banks money LOL.. boy it was good when it was good.. borrow at 5 lend at 20... 15% on the delta made for a nice living if you can scale it..

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
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    @Isaac Blocher  you need to be licensed or have a RE broker originate your deals in CA.. just fyi or nmls RMLO

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

    @Jay Hinrichs Even if I am just using my own money? Currently I am lending my own money to fix and flip borrowers. I charge 10% and when they sell the pay me off. What does nmls and RMLO stand for?

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  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    10y
    Originally posted by @Percy N.:

    Shari Peterson might be able to offer some insight here.

     Percy I was able to have an extensive conversation with @Isaac Blocher about some of the ins and outs of transactional funding. With TF, he will be able get a much better annual return on his cash than the typical 12-15% Hard Money annual return.

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

    @Isaac Blocher  yup you can't orginate loans in CA without a brokers licnese or RMLO .. simply get a RE broker to do your disclosures.  and be careful putting this out on the internet.. someone turns you in you have no defense as you just admitted to it.  :)

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

    @Shari Peterson  that's true if you have significant deal flow.... need a big pipeline.

    but sure like the APR when you spin it on the calc..for a one day deal.. or a 5 day or less.

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  • Crystal Mchazlett
    Real Estate Investor · Oklahoma City, OK · Member since 2016 · 19 posts · 5 votes
    10y

    My money lender only charges 1% to borrow

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

    @Jay Hinrichs Thank you, I appreciate you letting me know. BiggerPockets is a great place to learn everything you need to know.  

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

    @Isaac Blocher  yes lots of white noise out there and its not a problem until it becomes one..

    but its easy enough in CA to simply have a broker do your disclosures for you and bless it.. cost of doing business legally.

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

    EMD: Earnest Money Deposit

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

    Can someone explain the need for borrowing money to wholesale a deal? 

    In every state I've wholesaled, friends have wholesaled we've never needed to use a dime to pay for a deal. The contract is assigned, then a buyer buys the deal and their money is used as they are the ones buying it. 

    The whole term of wholesaling originates on the fact you don't close on a deal with your own money you just sell a contract like options trading. I'm so lost on this discussion right now. 

    *Any new people reading this thread. I've completed close to 100 wholesale deals without the need to use transactional funding. Please check before thinking this is normal, its quite the opposite*

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  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    10y

    @Tim G. you're right -- many times with wholesaling you never have to pay a dime for funding. You simply assign the contract and that buyer closes with his own source of funds.

    However, there are situations where either you cannot or don't want to assign:

    CANNOT:

    Most every REO, HUD, or Short Sale purchase offer contract will be rejected if And/Or Assigns is named in the Buyer field.

    DON'T WANT:

    If you have a particularly high profit spread between the A-B and the B-C, your C Buyer many times will not allow it and demand a smaller assignment fee. This is true even if the market value for the As-Is is right on target.

    For example, let's say you are getting a deal for $100k that is worth $130k As-Is. If $25k in rehab is put in it, it will have a $225k ARV. Any rehabber would be thrilled to get that deal for $130k with a $70k profit after he does the work. But he is not willing to pay you $30k for just an assignment fee - he'll say it should be maybe $10k - $15k. You can conceal the profit spread by doing a double closing. The C Buyer will be none the wiser.

    NOTE: this may only work if you have a cash buyer. The C Buyer's lender could discover that you are not yet the Seller of Record when they do appraisals, etc.

    2Reply
  • 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.

    3Reply
  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    10y

    @Tim G. Hey -- more power to you. It's always best to be able to assign and not have to worry about funding. If you have solid buyers who are true capitalists, they won't mind how big your assignment fee is, as long as the numbers work for them. 

    As an experienced wholesaler, you are in a good position to not have to bother with getting funding. I had posted my comments to benefit others who may not have as much experience in wholesaling and wondered the same thing -- "why on earth would you ever need funding if you were just assigning it?"

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

    @Shari Peterson  and or states were wholesaling something you don't own is not legal.. this is starting to happen all over the country... I know its a hot potato topic  LOL.

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  • Tim G.
    Rental Property Investor · San Diego, CA · Member since 2011 · 1k+ posts · 1k+ votes
    10y
    Originally posted by @Jay Hinrichs:

    @Shari Peterson  and or states were wholesaling something you don't own is not legal.. this is starting to happen all over the country... I know its a hot potato topic  LOL.

     Besides Ohio, where else? Perhaps its semantics but you're still wholesaling something you don't own (until it closes I guess) but if that's the case a double closing would cure the issue if its approached this way.

    0Reply
  • Cheryl Crockett
    Real Estate Investor · Baltimore, MD · Member since 2016 · 63 posts · 35 votes
    10y

    This is alarming; it's the first time I've heard of it.

    Under what circumstances would anyone be required to pay more than 1-2%?

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

    @Cheryl Crockett I believe the most transaction lending is 1-2%.

    0Reply
  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    10y
    Originally posted by @Cheryl Crockett:

    This is alarming; it's the first time I've heard of it.

    Under what circumstances would anyone be required to pay more than 1-2%?

     I think they were referring to 12% annual interest rate vs 1-2% paid as points on the loan for the one day.

    1Reply
  • Cheryl Crockett
    Real Estate Investor · Baltimore, MD · Member since 2016 · 63 posts · 35 votes
    10y

    Thank you @Isaac Blocher & 

    @Shari Peterson 

    Is it possible someone in this thread (and elsewhere) has been taken advantage of?

    0Reply
  • Shari Peterson
    Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes
    10y
    Originally posted by @Cheryl Crockett:

    Thank you @Isaac Blocher & 

    @Shari Peterson 

    Is it possible someone in this thread (and elsewhere) has been taken advantage of?

     Do you mean as in they've been charged 12% for one day funding?

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