Why Every Wholesaler Needs Transactional Funding In Their Toolbox
If you don't already know, transactional funding is a type of funding used by wholesalers to complete double closes if you don't have enough cash laying around to buy and sell a property in the same day. Most wholesalers don't so they use a service that typically charges between 1 & 2% of the transaction in order put the money up for a double close.
What is a double close & and why would you ever do one as a wholesaler? A double close offers you the protection of never showing your seller what you are reselling for until it's already sold, and never showing your buyer what you bought it for until it's already sold. Basically, Party A sells to you "Party B", and on the same day, you "Party B" sell to "Party C" which is typically as cash buyer/rehabber or buy and hold investor.
Typically if you stand to make a large wholesale commission you will want to do a double close vs a simple assignment. Some say anything over $10,000 while others say anything over $15,000. It may cost some money, but it ensures your deal gets done.
Now that we have context out of the way, it's important for every wholesaler to have good transactional funding partner to make sure their double closes get done. We have seen several deals fall apart at the closing after a seller who said they didn't care how much a wholesaler was making on a deal simply not show up at the closing table after they saw someone was going to make $40,000 or more just for showing up. You only make that mistake once in your career, and it's more common than you might think. Make sure you aren't losing out on big wins to save a small profits.
Generally you are only looking at paying 1-2% for transactional funding of a deal so it's a small price to pay to ensure you lock in your big payday.
Here is where it gets really good though. It's actually possible to get transactional funding without paying anything! That's right. You can get free transactional funding as a wholesaler if your deal meets a few basic requirements.
Typically in order to get zero cost transaction funding the company that offers the funding is going to have to make their money somewhere else. What's great about the strategy I am reporting on here is that not only can it reduce your expenses and increase your net profits, it can actually make it easier to wholesale your properties and get better margins.
The key to this strategy is finding a hard money lender that is willing to offer free transactional funding if the "Party C" buyers ends up using a hard money loan to purchase the property. It's a win for them because you bring them a new loan while they are simply putting out money they were going to loan, and a win for you because now you don't have to pay transactional fees.
This strategy multiplies it's effectiveness if your working with a hard money lender that will work with wholesalers and pre-approve your deals for hard money lending. This dramatically increase the marketability of your deals. If the hard money lender offers 75% LTV pre-approval on SFR that you can market, now your buyer only has to come up with 25% plus closing costs instead of the full cash purchase price. This is very attractive to many people, they just never get offered it. Imaging a car lot that tried to sell cars without financing. It wouldn't be a very busy car lot.
Now go out and find a hard money lender willing to offer free transactional funding. Even when you don't need transactional funding because you are direct assigning you can still benefit from offering pre-approved financing on your wholesale deals to improve your sell through. Good luck, connect with questions.