What is Transactional Funding?
Transactional funding is ultra-short-term financing used by real estate wholesalers to complete double closings. The funds are borrowed for as little as a few hours -- just long enough to close the purchase from the seller (the A-to-B transaction) before immediately closing the resale to the end buyer (the B-to-C transaction). The transactional lender provides the capital to bridge the gap between the two closings, then gets repaid from the B-to-C proceeds, usually on the same day.
This type of financing exists because a double close requires you to actually buy the property before you can sell it. Unlike an assignment of contract, where you simply transfer your contractual rights, a double close involves two separate real estate transactions with two separate title transfers. You need money to fund the first transaction, even though the money from the second transaction repays it almost immediately.
How the process works
The typical transactional funding process follows a specific sequence. First, you have a signed purchase contract with the seller at your agreed price. Second, you have a signed purchase contract with your end buyer at the higher resale price. Both closings are scheduled at the same title company, usually on the same day or within 1-3 days.
Timeline example:
10:00 AM — Transactional lender wires funds to title company
10:30 AM — A-to-B closing: you purchase from seller using borrowed funds
11:00 AM — B-to-C closing: you sell to end buyer, receive their funds
11:30 AM — Transactional lender is repaid from B-to-C proceeds + fee
Total time with borrowed money: ~1 hour
The transactional lender never actually "gives" you the money to use freely. The funds go directly to the title company's escrow account and are used solely to close the A-to-B transaction. The lender gets repaid from the B-to-C closing proceeds before you see any profit. Everything is handled through the title company, which provides security for all parties.
What transactional funding costs
Transactional funding is expensive on an annualized basis but cheap relative to the deal. Typical fees range from 1-2% of the funded amount for same-day closings. If the B-to-C closing is delayed beyond the same day, the cost increases -- often to 2-3% plus a per-day holding fee. Some transactional lenders charge a flat fee for smaller transactions.
On a $150,000 purchase, a 1.5% fee is $2,250. If your spread on the deal is $15,000, the transactional funding cost represents 15% of your profit. This is why assignments are generally preferred when possible -- they avoid this cost entirely. You use transactional funding only when an assignment isn't feasible or when you want to keep the two transactions completely separate.
When you need transactional funding
The most common reason to use transactional funding instead of an assignment is to keep the A-to-B and B-to-C prices separate. In an assignment, both the seller and buyer can see each other's numbers, which reveals your spread. If you're buying at $120,000 and selling at $160,000, that $40,000 spread is visible to everyone. Some sellers balk at large assignment fees, and some buyers feel they're overpaying. A double close with transactional funding keeps the two transactions completely independent.
Other situations that require transactional funding include contracts that prohibit assignment (common with bank-owned properties and some institutional sellers), end buyers using conventional financing (many lenders won't close on an assigned contract), and deals where the spread is large enough that the transactional funding fee is justified by the privacy benefit.
Requirements for transactional funding
Transactional lenders have minimal qualification requirements because the loan is so short-term and so well-secured. The key requirements are a signed A-to-B contract with a clear closing date, a signed B-to-C contract at a higher price with proof the buyer has funds, a title company willing to handle same-day double closings, and title work showing clean title. The lender doesn't care about your credit score, income, or financial history because they're secured by both the property and the guaranteed B-to-C closing proceeds.
The biggest risk for the transactional lender is the B-to-C closing falling through after the A-to-B closing has completed. To mitigate this, most transactional lenders require proof of funds from the end buyer and sometimes require both closings to occur on the same day. If the B-to-C buyer is using cash, the risk is minimal. If they're using financing, there's more scrutiny.