WHAT IS TRANSACTIONAL FUNDING?
Transactional Funding is sometimes referred to by different names including - Flash Funding, Flip Funding, Same Day Funding, One Day Bridge Funding, One Day Dough, etc.
It is primarily used by investors who have secured a signed purchase contract for a piece of property with a Seller but:
- Do not want to keep the property as part of their portfolio
- Want to immediately re-sell (flip) property to a new Buyer, at a higher price, simultaneously at closing, and walk away with cash.
- Most importantly, they do not have the funds (or prefer not to use their own money) to close their side of the purchase transaction with the seller.
In the good old days, and especially before the financial crisis of 2007/2008, this was a very easy matter to handle. The investor would simply bring both contracts to Escrow: the first contract between Seller (A) and Investor (B) -- known as "A-to-B", and the second contract between Investor (B) and the end Buyer (C) -- known as "B-to-C". Then "Magic"!!! Both transactions would close "simultaneously"; Seller (A) gets paid for their property, end Buyer (C) gets deed to property. What about the Investor (B)??? Well, the "poor fella" walks away from closing with a check (say $5,000.00, $10,000.00, $15,000.00, $20,000.00 or more), without spending a single dime of their own money!!! Magic?? Maybe not.
For this to work, two conditions must be met:
- End Buyer (C) must bring their funds to closing for the "B-to-C" transaction.
- Escrow (Closer/Title Company) is willing to allow "simultaneous" closing where funds from end buyer (C) will be used to pay Seller (A).
Then the closer simply uses the funds from the "B-to-C" leg of the closing to pay the Seller in the "A-to-B" leg. Since the purchase price in "B-to-C" is higher than the purchase price in "A-to-B ", there is an Overage -- the difference between the two prices. That Overage goes to the Investor (B) as profit. A perfect no-money-down transaction for the Investor. No Magic !!!
But, as stated earlier, this process was possible only in the good old days. Today, most Title companies will not do an "A-to-B" closing without "wet" funds, that is, money directly coming from the buyer - Investor (B); in particular most Banks don't permit it. But what if Investor (B) does not have the money? Well, there is a good solution to that problem; it is Transactional Funding - it provides the funds for Investor (B) to close on the "A-to-B" leg of the transaction.
The following are some M3 Equity Capital guidelines for Transactional Funding.
MINIMUM/MAXIMUM LOAN AMOUNTS
No minimum amount
Maximum amount - $1.5 million
** Make sure there is enough spread between both transactions to cover fees**
CREDIT SCORE REQUIREMENTS
There are no credit score requirements. Approval for funding is based solely on meeting the basic requirements for transactional funding:
- You (B) must have a valid purchase contract with seller (A)
- You (B) must have a valid re-sell contract with new Buyer (C)
- You (B) must have your earnest money escrowed with Title Company
- Preliminary title report on property from A to B close/Title company
TYPES OF DEALS WE FUND
Back-to-back flip transactions involving, but not limited to the following:
- Short Sale
- Residential or Commercial
- Up to $100,000.00 -- flat fee of $1,950.00
- $101,000.00 to $500,000.00 --- 1.75%
- $501,000.00 to $1.0 million --- 2.0%
- Over $1.0 million — case by case
A flat processing fee of $475.00 is paid upfront upon approval of funding request.
Before requesting funds an applicant must have the following items ready:
- An active purchase contract (A to B) with Seller
- An active sales contract (B to C) with end buyer
- Copy of your receipted Earnest Money; copy of Title commitment.
- Name of licensed-insured Title company/closer; contact info.
- Verification of funds for end Buyer
- Verification that closer is aware this will be a back-to-back closing.
TRANSACTIONAL FUNDING – Simple Illustration
Transactional Funding – Step By Step
1. The Investor (You) - Obtains a contract to purchase the property from the Seller
2. The Investor (You) - Obtains a contract to sell the Property to the End-Buyer
3. The Investor (You) - Opens the file with your chosen Closing Company (must use same closing company for both sides of the transaction).
4. The Investor (You) - Submit the Transaction Form and both Contracts to the lender for funding.
5. Lender works directly with the Closing Company to arrange the funding of A Side.
6. The Closing Company - facilitates the closings of both the A Side and B Side transactions the same day.
7. When both transactions are closed and disbursement has been approved, the Closing Company will distribute the lender funds to the original Seller, and distribute the end-buyers funds to pay-off lender and pay the remaining Profits to you, the Investor.
Available for both residential and commercial properties, Transactional Funding is the perfect solution for Short Sales, Wholesalers, and Flippers to simplify the closing process, eliminate the headaches and drive more profits
FREQUENTLY ASKED QUESTIONS -- FAQ
- Can my end-buyers bring their funds in on closing date?
No, 100% of funds must be in Escrow 24 to 48 hours before closing
- How quickly can you fund?
We can provide Funding Commitment within 24 hours of receiving all required documents, and then fund within 72 hours thereafter.
- Can I use my own Title Company?
Yes, as long as they are licensed, insured, and in good standing with their state regulators. Note that for REO's and Short Sales, the Seller/Banks demand you use their chosen closers. You can use your own closer for "B to C" as long as they can close the same day and Buyer's funds have already been escrowed. Using the same title company for both "A-to-B" and "B-to-C" is preferred - it makes it much easier to coordinate closings
- Will you check my credit?
NO. Funding is based on the viability of the transaction, not your credit.
- Will you provide Proof of Funds?
Yes…… Residential: $500,000.00 max; Commercial: $1.50 million max.
- Do I need an appraisal?
Generally, no. However, in some cases where the "B to C" closing is taking place at a different title company, funding for "A to B" may be restricted to a maximum of 65% ARV as-is. In such instance, an appraisal may be required.
PROOF OF FUNDS
Proof of Funds is available for both residential and commercial transactions. No credit is necessary, but a detail application with references is required. On the very first application for Proof of Funds it is required that a formal Investor Loan Application be completed; for subsequent requests, simply send email to: Admin@m3equitycapital.com to request your Proof of Funds letter.
How Transactional Funding Works
If you have a signed contract and are wholesaling your deal to an end buyer, then if you are short on cash you might need transactional funding. Transactional funding is perfect for bank owned properties (REO’s) and Short Sales that you are flipping to an end buyer. Since banks do not allow assignable contracts on these types of properties - you are going to need to schedule a double closing with your end buyer. Double closings - also known as simultaneous closings - allow you to schedule two back-to-back closings for the same property on the same day. You will need to have a source of funds to pay for the first transaction. This is where transactional funding (also known as same day funds or quick cash or flash funding) is needed.
General Criteria For Transactional Funding
Use one Title Company for both closings, preferably our Title Company - since it is much easier to coordinate a double closing if both closings are at the same title company.
But if the Bank insists that you have to use the seller's (Bank’s) Title Company for the A-to-B closing, that is fine.
However, you must use one of our approved Title Companies for the second B-to-C Closing if you want us to fund your deal. The reason is because we need to ensure that everything goes smoothly.
How does transactional funding work?
If you are looking to flip a bank owned property then you will have two contracts and two closings. The first contract is between the Bank (Seller) and You (Buyer). The second contract is between You (Seller) and your End-Buyer (End Buyer). The End Buyer is the person that will ultimately be the long term owner of the property.
Example of transactional funding for a double closing:
A — Bank
B — You
C — End Buyer
You have a purchase contract with the bank to purchase a bank owned property at $120,000 (first contract). This is known as the A-to-B transaction.
You market this property to your cash buyers and you find a Buyer at $150,000. You sign a contract with this Buyer - with you being the Seller, and this new Buyer being the “End-Buyer” – and this being the second contract. This is known as the B-to-C transaction.
The difference between the two contracts (after deducting closing costs and transactional funding fees) is your PROFIT which you will walk away with at the closing.
Double Closings-Double Costs
Since there are 2 (two) contracts, there are 2 (two) closings. This means you will pay double closing costs. Banks used to allow the funds from the End-Buyer to pay for the purchase of the A-to-B transaction (dry closing) but increased regulations specifically related to Short Sales now require all closings to be funded separately (wet closing). This is where Transactional Funding comes into play.
What are the fees for transactional funding?
The transactional funding cost is as follows:
1.75% of funded amount + $475.00 Processing fee.
Processing Fee is paid up-front; non-refundable IF either A-to-B or B-to-C falls through.
Processing Fee is fully refundable IF funder has committed to fund by a date certain, but then fails to fund – when Escrow and all contracted parties are ready to close.
Your regular Escrow closing costs are not related to Transactional Funding costs - and are charged separately.
**** The Processing Fee described above may be, in the end, your only out-of-pocket costs – if you understand how to use Transactional Funding for Flips and Wholesaling ***
What if the bank insists on using their title company for the first transaction?
That is fine for the A-to-B closing but we will only provide transactional funding if you use one of our approved title companies for the second B-to-C closing.
What do I do if I find an end buyer?
You should always take a Deposit from your End-Buyer that is at least twice the amount of your initial deposit with the Seller. Preferably your End-Buyer should have a minimum of $10,000.00 with Escrow – made out to Title Company, at the outset or within seven (7) days of closing. If end-buyer is telling you they will pay $100,000.00 CASH for the deal, they should be able to put down at least 10% or $10,000.00 with Escrow – as Proof.
The larger the amount of End-Buyers deposit in Escrow the greater the chance of YOU getting funded. End-Buyer MUST have a Proof of Funds – either proof of CASH in their Bank accounts or a valid verifiable written commitment of a third party funder for that particular property. Just stating that End-Buyer has been “qualified” for funding is NOT good enough. You should make sure that you specify to your end buyer that this is an ALL-CASH transaction, and that their deposit is non-refundable if they fail to come up with the balance at closing. Deposits should only be in certified funds or, preferably, wired funds directly to Escrow.
*** PLEASE NOTE:
- We will verify with Escrow-Title Company to ensure your End-Buyer has a cleared deposit, and how much – prior to committing to fund you.
- It is your responsibility to send both contracts to the title company.
- It is your responsibility that Title Company will do back-to-back closings; if not – contact us to find an alternate Title Company – if possible.
- It is also your responsibility to communicate with us about the deal well in advance (7 days before closing).
Can you help me find an end buyer?
Yes, if we find a buyer for your transaction then we will SPLIT THE PROFIT with you 60/40 net of closing costs and transactional funding costs – with you keeping 60% of net profits, and 40% coming to us. If we are providing transactional funding, you will still be responsible for paying the transactional funding costs, plus 100% of all the other regular escrow closing costs.
What areas do you fund?
We will provide transactional funding for properties that are located anywhere in the continental United States.
First, send an email to us at: Admin@m3equitycapital.com – followed by fully completing an Application for Transactional Funding with all documentation - since you need to make sure that we are willing to fund your deal. If you do not have the B-to-C contract yet, wait until you do before filling out an application. You can always contact us by email at any time to discuss any of your in-process deals.
Questions - Comments
If you have any questions about transactional funding, double closings and funding your wholesale deals please send an email to admin@3EquityCapital.com