What Is Transactional Funding? (And What's the Best for You?)
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What Is Transactional Funding? (And What’s the Best for You?)

James Crandall

August 8, 2023 · 9 min read

Transactional Funding

Transactional funding is an option you need to know for quick real estate transactions where you need same-day or next-day financing!

Funding is one of the most challenging aspects of real estate investing.

Transactional funding often comes in handy with wholesaling, but there are several instances where this could be the right option for you. While requirements are minimal, there are certain risks to be aware of. 

However, understanding the real estate transactional funding program will help grow your real estate portfolio and make investment decisions easier.

What Is Transactional Funding? (Meaning)

Transactional funding in real estate, also known as same-day or flash funding, is a type of financing that does not require credit or income verification. Instead, it's a program that allows investors to borrow short-term to attain real estate deals.

This program is used by investors who desire to purchase property but don't want to use their money. When looking at transactional funding, it's favorable through the eyes of lenders because it's short-term as long as there's proof of a qualified end buyer.

When done for the right reasons and correctly, transactional funding allows investors to make a significant profit without risking their own money.

Transactional funding often refers to a short-term financing strategy used in real estate transactions, particularly in cases involving "double closings" or "back-to-back closings." It allows real estate investors to acquire a property with the intention of reselling it to another buyer on the same day.

Transactional funding is typically used when the investor does not have the necessary funds to purchase the property themselves, but they have a pre-arranged resale agreement in place.

It allows investors to capitalize on real estate opportunities that require quick execution, such as properties available at a discount or in competitive markets. The use of transactional funding helps facilitate the seamless transfer of ownership from the initial purchase to the resale without the investor using their own funds for the entire process.

While transactional funding can be a powerful tool for real estate investors, it typically involves higher fees and interest rates compared to traditional financing options. However, the benefits can outweigh the downsides when you find a good deal (and a reliable lender).

What Is Transactional Funding Proof of Funds?

Transactional funding proof of funds refers to the documentation or letter provided by a transactional funding provider to demonstrate that the necessary funds are available to complete a specific real estate transaction.

This proof of funds (POF) is typically required by the parties involved in a real estate deal (such as the property seller, the buyer, real estate agents, and closing agents) to ensure that the buyer has the financial capacity to proceed with the transaction.

The proof of funds letter serves as evidence that the transactional funding provider has the funds available and is willing to provide them to the investor for the initial purchase of the property. This is a critical component of double closings or back-to-back closings, where the investor intends to acquire the property and then immediately resell it to another buyer on the same day.

Work with reputable and established transactional funding providers when obtaining a proof of funds letter. The letter should be issued by a legitimate source and include accurate and verifiable information. Investors should communicate with their chosen transactional funding provider to understand the process of obtaining a proof of funds letter and any associated requirements.

how transactional funding works

How Does Transactional Funding Work?

In today's economy, there are tight regulations regarding real estate funding. 

When a real estate investor wants to purchase a property, they must use their funds to pay the original seller before selling it and profiting from the end buyer.

Due to these strict regulations, investors turn to transactional funding to purchase property and then use that money from the buyer to pay off the loan. 

So, what does this look like?

A real estate investor will sign a contract to buy a property from a seller at a set purchase price.

At the same time, a buyer signs a contract to purchase this property from the investor at a higher price than the purchase price. Once the investor provides proof of a purchase agreement, a lender will approve or deny it. 

The investor receives the funds with no down payment or credit check requirement if approved. After using the funds from the sale to pay back to funding, the investor keeps any leftover funds as profit.

Advantages of Transactional Funding

Advantages of Real Estate Transactional Funding

Here are a few advantages of transactional funding. 

Less Risk –Your money is safe. Your money is not tied up, even when it comes to earnest money.

Easy Process/Paperwork – With no income or credit score verification, paperwork is straightforward. Once you have proof of funds from the end buyer, the process moves quickly.

Fast Financing – It's nicknamed same-day financing because it usually offers funds the same day as approval. This is a great asset for investors who need to close quickly.

Complete Funding – Transactional funding covers 100% of the money, unlike other programs that only partially cover financing.

Open to More Investors – Investors can get approved even with a poor credit score or bad credit history. This opens up the program to a variety of investors.

Disadvantages of Real Estate Transactional Funding

While there are many benefits, there are some downsides too. Here are a few disadvantages of transactional funding. 

Investors Must Have a Buyer Ready – While credit and income approval are not required, proof of an end buyer is. A purchase contract is the only way an investor can get approved.

Fees – Transactional funding does come with closing costs – typically 2% to 12%. And while investors can often recoup costs, it's still a fee that you must be prepared to handle.

Title Issues – Title companies often delay the process with double closings.

Setbacks are Pricey – Investors often need to move quickly. This means accessing the capital/funds and moving on from the transaction. 

Delays such as a contract default, underwriting delays, or inability to get financing can hinder the transactional funding process and cause pricey setbacks for investors.

Inexperience – If you're a beginner to real estate investing, it's vital to understand the funding process before jumping in. 

This type of funding moves fast, and while this is primarily an advantage, it can come as a disadvantage to anyone who isn't adequately prepared.

Alternative options to transactional funding

Alternative Options to Transactional Funding

Transactional funding is not always the best option for real estate investors. Additionally, not all investors meet the eligibility requirements for this program. 

Investors must have an end buyer with proof of funds, due diligence for the property in question, and possibly more depending on the lender and type of transaction.

Luckily, there are alternatives to transactional funding that are less risky. These alternatives are:

Hard Money Loans

Hard money loans are another option for short-term financing. However, hard money loans are asset-based investments that can be repossessed if the borrower defaults on the loan. The asset is often the investment you're purchasing. 

While loan terms vary, you typically have six months to repay hard money loans.

Private Money Lenders

These are non-institutional lenders such as friends or family willing to loan the money you need for funding. Unfortunately, this is an unregulated process and is often subject to higher interest rates and fees.

Bank Loans

Many investors prefer to go the traditional route with bank loans. Bank loans require more time and paperwork but can come with favorable interest rates and fees.

What Is the Best Transactional Funding?

The "best" transactional funding option for you depends on your specific needs, circumstances, and the nature of your real estate transaction. When evaluating transactional funding providers, consider the following factors to determine the best option:

  1. Speed and Efficiency: Look for a transactional funding provider that can offer quick approval and funding to meet your tight timelines. A fast and efficient process is crucial for successful double closings.
  2. Experience and Reputation: Choose a reputable provider with a proven track record of successful transactions and positive reviews from other real estate investors.
  3. Transparent Terms and Pricing: The best transactional funding option will provide clear and transparent terms, including fees, interest rates, and any other costs associated with the transaction.
  4. Flexibility: Ensure that the transactional funding provider offers flexibility in terms of loan amounts, property types, and transaction structures to accommodate your specific needs.
  5. Funding Amounts: Consider whether the transactional funding provider can offer the funding amount you require for your transaction.
  6. Proof of Funds Letter: If required, the transactional funding provider should be able to provide a reliable proof of funds letter promptly.
  7. Reputation in the Industry: Look for providers that are well-known and respected within the real estate investing community.
  8. Availability: Ensure that the transactional funding provider is available and willing to work with you in your specific geographic area or target market.
  9. Loan Repayment Terms: Understand the repayment terms and ensure they align with your expected resale timeline.
  10. Customized Solutions: The best transactional funding option will work with you to understand your investment strategy and tailor their services to fit your needs.

Transactional Funding for Real Estate Investors

If you're an investor looking to invest in a property or wholesale deal, transactional funding may work best. This type of funding is often best for fast deals where investors already have a buyer lined up and ready.

Like all real estate funding programs, there are risks – the biggest being having a buyer lined up and paying the loan back quickly.

Yieldi offers transactional funding for wholesales or proof of deposits, and more. We charge competitive rates and can close quickly on a double escrow loan. 

In addition, our loan terms include elements like closing a loan in as little as five days, no repayment penalty, lower transaction fees, and much more. 

For a complete list of benefits and how it works, contact our team.

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