Transactional Funding: Complete Guide
Transactional funding is a short-term loan specifically designed for double close transactions in wholesale real estate. The lender provides 100% of the purchase price for the A-to-B closing, and the loan is repaid hours or days later when the B-to-C closing occurs. It is the bridge that allows wholesalers to close on a property and immediately resell it without using their own capital.
How transactional funding works
- You have a property under contract with the seller (your A-to-B contract)
- You have a buyer ready to purchase at a higher price (your B-to-C contract)
- The transactional funding lender provides 100% of the A-to-B purchase price
- You close the A-to-B transaction, acquiring the property
- Within hours or days, you close the B-to-C transaction, selling to your buyer
- From the B-to-C proceeds, you repay the transactional lender and keep the spread
Cost structure
Transactional funding is expensive on an annualized basis but cheap in absolute terms because the loan period is so short:
- Fee: 1-3% of the loan amount (a one-time fee, not an annual rate)
- Minimum fee: $1,000-$2,500 per transaction
- Daily rate (if held overnight): Some lenders charge 0.1-0.5% per day beyond same-day closing
- Processing/admin fee: $250-$500 in some cases
Transactional Funding Example
A-to-B purchase price: $150,000
B-to-C sale price: $170,000
Transactional funding fee (2%): $3,000
Additional closing costs (both transactions): $4,000
Your net profit: $170,000 - $150,000 - $3,000 - $4,000 = $13,000
Requirements from the lender
Transactional funding lenders require:
- Signed A-to-B contract: Your purchase agreement with the seller
- Signed B-to-C contract: Your sale agreement with the end buyer (critical: the lender needs confirmation that the exit is secured)
- Proof of buyer's funds: Evidence that the end buyer has the cash or financing to close (bank statement, pre-approval letter, or proof of funds)
- Title company coordination: The title company must be willing to handle the back-to-back closings and provide a commitment letter
- Clear title: A preliminary title report showing no issues that would prevent closing
When to use transactional funding vs assignment
| Scenario | Best Exit |
|---|---|
| Seller and contract allow assignment | Assignment (cheaper, simpler) |
| Contract prohibits assignment | Double close with transactional funding |
| Large assignment fee might scare buyer | Double close (fee is hidden in the purchase price) |
| REO purchase (banks prohibit assignment) | Double close with transactional funding |
| Condo with HOA ROFR | Double close to avoid triggering ROFR on assignment |
| Privacy preference (you do not want buyer to see your purchase price) | Double close |
Finding transactional funding lenders
- Specialty lenders: Companies like Best Transaction Funding, Fund That Flip's transactional product, and Coastal Funding specialize in this niche
- Hard money lenders: Many hard money lenders offer transactional funding as a product line
- Private lenders: Individuals who understand the strategy may provide transactional funding at lower rates than institutional lenders
- Title companies: Some investor-friendly title companies have relationships with transactional funding sources and can make introductions
Common issues and solutions
Title company resistance
Not all title companies will handle simultaneous or same-day closings. Find a title company that specifically works with investors and is experienced with double close transactions.
Buyer's lender objections
If the end buyer is using a mortgage, their lender may object to the short ownership period (you only owned the property for hours). Some lenders have seasoning requirements that prevent purchases from sellers who owned the property for less than 90 days. Cash buyers do not have this issue.
Timing coordination
Both closings must happen in sequence: A-to-B first, then B-to-C. If the B-to-C closing is delayed, you are holding the transactional loan and accruing daily fees. Schedule both closings at the same title company on the same day to minimize risk.
Related articles
- How to Double Close
- Double Close Funding Options
- Hard Money vs Private Money
- Proof of Funds: What Buyers Need