Transactional Funding allowed in California

[Jeffrey Emery]

I am just getting into Wholesaling and interested in Transactional Funding. My area is Southern California. Is Transactional Funding legal in California? Is it the same thing as Double Closing as far as the Title Company is concerned?

Jeffrey Emery

[Shari Peterson]

Hi @Jeffrey Emery  - Transactional Funding is short term funding used to close on a purchase of real estate, followed by immediately selling that real estate to a new exit buyer. "Immediately" can be defined as hours, or even days. There is never any rehab done between the purchase and the sale.

In California, you cannot buy and sell the same piece of real estate in the same day. You must close on the purchase (the AB Transaction) on one day, followed by closing on the sale (the BC Transaction) the following day after the AB closing has been recorded. A=The Seller, B=The Buyer, and C=The Exit Buyer. You as the investor are the "B" party in both sides of the transaction.

The reason people use Transactional Funding for wholesale deals vs. assignment is because either 1) they don't want to assign the property to the exit buyer because that would reveal their large profit in the deal, or 2) the purchase cannot be assigned because the seller won't allow an assignment. 

For the first scenario, as a general rule you want to double close using Transactional Funding when your profit exceeds $10,000 or 10% higher than your AB purchase price. The second scenario is common in short sales and REOs, but also sometimes FSBOs want to sell to the person they believe will live in the house they're selling vs. some stranger assignee who they have no idea who they are. 

The expression "double closing" can also be called a "double escrow", especially in California. This simply means that there are two entirely independent closing / escrow files involving the same property; one for the AB Transaction and one for the BC Transaction.