Transactional funding for wholesalers has become more and more prevalent when a double closing is needed to wholesale a deal to an end buyer. Essentially, transactional funding is a short term loan which funds a real estate closing for a short period of time. This allows a wholesaler to actually buy the property from the original owner first. Once that initial closing is completed the wholesaler then sells that property to the rehabber/flipper by having a second closing within a short period. This is usually referred to as a double closing. Both closing take place with little time passing between the first and second closing. Often they are done back to back.
The transactional funding party will generally take the appropriate steps to verify that the end buyer has been approved for closing and has the required funds in place before they will fund the first part of the deal. The fee charged by a transactional lender is usually between 3 and 4 points (the percentage of the principal amount of funding). Generally if the deal extends beyond a 24 hour period you will find that there will be a pretty steep interest rate charged to the wholesaler, in addition to the points, which will cover the number of days that the loan is outstanding. Interest may be as much as 12 to 14 percent in many cases, which should inspire the wholesaler to get the deal done very quickly.
Transactional funding of a wholesale deal is not uncommon. It seems like the concept of this type of lending has become more prevalent since the collapse of the real estate market. Traditional lenders became more weary of certain types of funding once the real estate market situation changed.
The bottom line is this, if transactional funding is the only way to close a deal and you will make money by using this source of funding, do it.
Please visit propertycoach411.com and find me Property Coach on Facebook.