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Transactional funding is a financing solution for real estate investors, especially wholesalers. Discover it’s benefits in this guide.
Welcome to the labyrinth of real estate finance, where buzzwords like “hard money,” “bridge loans,” and “private lending” reign supreme. It’s easy to get lost in this maze, but fear not!
Today, we’re talking about a lesser known but incredibly impactful term: transactional financing. This is the lifeblood of quick, effective real estate deals… and it’s about to become your new best friend.
Well, think of transactional financing, as a financial shot in the arm. It’s short term, powerful, and designed to keep things moving swiftly.
This form of funding is particularly popular in the wholesaling sector of real estate.
Why?
Because it’s ideal for those looking to acquire and immediately flip properties.
Transactional financing is essentially short-term capital that investors borrow to close deals. Unlike your average mortgage, we’re not talking about 30-year commitments here.
Oh no, some of these loans are as short as a few hours or days! It goes by many names: “flash funding,” “short-term funding,” and “same-day funding,” to name a few.
The reason for its popularity?
Simplicity and speed. Most transactional financing loans are approved within a 24- to 48-hour window.
So if you find a property today, you could technically own it by the weekend, thanks to transactional financing. Plus, there’s no need for a credit check. What a time to be alive, right?!
Ready to jump into the fast-paced world of real estate wholesaling?
Good! Because transactional financing could just very well be your new go-to strategy.
So, here’s the breakdown without the financial heartbreak.
Transactional financing is the straight shooter in the real estate world…
No need for personal funds or credit checks — just a smart strategy and a quick turnaround.
And if you think that’s clever, just wait until you see the profits roll in. That’s the power of transactional financing!
Transactional financing can be a game-changer for real estate investors, but it’s not without its challenges. Let’s break down the pros and cons to give you a well-rounded view.
Pros:
As with any real estate venture, there are always going to be some roadblocks that pop up along the way. In the realm of transactional financing, these include…
Cons:
Whether you decide transactional financing is the right strategy for you depends on your investment goals, risk tolerance, and level of expertise. If you’re ever unsure, don’t hesitate to speak with a transactional financing professional.
Alright, eager investor, qualifying for transactional financing is relatively straightforward. There are just a couple of items to secure. Here’s your checklist:
Now, let’s talk costs…
Transactional financing costs can vary depending on several variables: loan amount, length of the loan, and risk involved. Expect an origination fee around 2% to 3% of the total loan amount and an annualized interest rate between 10% and 15%.
How’s about a quick math class to make these details tangible?
So, for example, if you borrow $100,000 for less than a day, you could be looking at just the origination fee of 2%, or $2,000.
But let’s say the loan extends to 60 days. Now you’re also paying annualized interest. Using a 10% rate as an example, that would add $166.67 to your costs on top of the 2% origination fee.
So yeah, time is quite literally money in this scenario.
Transactional financing is slick, no doubt, but it’s not the only game in town.
If the timing doesn’t line up or you don’t have flexibility in choosing a closing agent, you might want to look elsewhere, such as:
If transactional funding doesn’t work for you, there’s a financing option for every type of investor and every kind of deal. It’s all about picking the one that fits your business.
From the lightning-fast approvals to the blissful absence of credit checks, transactional funding is, indeed, a treat for the time-strapped and the entrepreneurial.
But let’s not forget: Like any financial venture, you need to think about tight timelines, possible hidden fees, and the necessity of having an end-buyer at the ready.
Transactional funding is certainly versatile, but it is best used by those who understand its intricacies — and hopefully, we’ve done you a solid with this here informative post
Now go out there and get some deals!
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