Transactional funding has become an essential and invaluable tool for real estate investors. Multi-pronged benefits make it a vital tool for both experienced high volume investors, and crucial for those looking to get started in real estate investing.

Here are just some of the reasons it has become so important..

Liquidity

It doesn’t matter if you start investing in real estate with millions or are making seven figures a year. That cash can become tied up quickly. Without liquidity investors get stuck, and everything grinds to a halt. That cannot just be financially perilous, but means missing out on the best and most profitable opportunities. Transactional funding breaks that cycle, even as the wider mortgage market looks to become tighter, by offering virtually limitless capital.

Fast Funding

Sellers and Realtors don’t want to wait around anymore. They don’t want drawn out closings, and will give preference to offers that promise a quicker closing. Investors don’t want to be playing the waiting game for months either. The faster you can close and flip it, and get paid, the higher your annual returns and income. Transactional funding can be closed in just days.

Access to Credit

Transactional funding offers access to credit for those without perfect credit or all the paperwork that conventional lenders are demanding today. You don’t have to worry about the IRS speedily sending copies of tax returns, how backed up real estate appraisers are, or if you have an error on your credit report that just won’t go away. This provides a desperately needed service for new investors looking to change the dynamics of their finances.

Ability to Act as a Cash Buyer

The best transaction funding enables investors to act just like cash buyers. The money is there, and available to close in just days, without worrying about all the micro-underwriting of most banks. For sellers and Realtors, that makes wholesalers using transactional funding as good as cash buyers.

Protecting Your Deals with Legal Double Closings

Unfortunately, the market continues to be rife with unscrupulous buyers, sellers, and agents who try to go behind the backs of investors. It doesn’t matter how good of a deal you seem to give some people, they still try to manipulate the system, and think they can get away with it. Instead of relying on assignments and assigning contracts, transactional funding provides the ability to double close legally and quickly, and protect all the investment made in marketing and securing buyers and sellers.

Why do you use transactional funding?

Is wholesaling houses ethical, or even still legal?

Some investors have been struggling with wholesaling houses due to questions of it still being legal and ethical. So is it, and is there a right and wrong way to do it?

The real estate investment business has become far more confusing in the wake of the bubble a few years ago. Regulations have changed and so have the vendors. Unfortunately many new investors are coming in with limited knowledge, or are relying on out of date investing courses and books, and they are getting pushed back by some of the real estate professionals they are approaching.

However, that doesn’t mean that there is anything illegal or unethical about wholesaling houses.
In fact, wholesaling and flipping houses has been increasingly embraced by those in power over the past few years. Fannie Mae has essentially sanctioned flipping by waiving certain requirements, and at many different levels the government has encouraged it in order to help the housing market and economy recover.

The fact is that wholesaling is essential and beneficial for everyone. Some of these benefits include:
• Helping struggling homeowners to find a graceful exit
• Helping banks unload non-performing assets and become profitable again
• Helping to generate more jobs and cash flow in the economy
• Helping to recycle property and revitalize neighborhoods
• Helping to protect and boost home values

A lot of the confusion about the ethics and legality of flipping houses comes from lack of education and not being aware of the right and wrong way to do it. Dry simultaneous closings might be an issue. But providing wholesalers stick to two separate, and ‘wet’ funded closings, with everything being disclosed there should be no concerns.

The key here is finding a reputable investor friendly title company which is committed to doing things the right way and using transactional funding for legitimate double closings.

Rehabbing has been made to look really cool and fun by reality TV but there are some very good reasons why real estate investors should stick to wholesaling via double closings with transactional funding versus attempting to fix up homes and resell them.

There are many real estate investing gurus and programs out there promoting fixing up and flipping homes, yet far too many individuals are jumping in poorly equipped to make great buys or deal with the nuances of rehabbing properly, at least for maximum profits.

However, even for the pro DIY weekend warrior there are some powerful arguments to ditch this strategy in the current market and stick to instant flips with true wholesaling…

1. The High Cost of Rehabbing

Building material costs are already sky high and will only continue to go up as the economy improves and inflation balloons. A new National Association of Home Builders survey puts this as the top concern of U.S. builders as of last month, and if they are worried with the discounts they can get, everyone else should have an eye on it too. On top of this many are seriously underestimating the coming rapid rise of labor costs and competition for the best talent that will make this a difficult strategy to scale in coming months.

2. The ROI is Miserable

Far too many flippers are either over-improving or under-improving homes and burning precious working capital while actually reducing their true ROI. If you gut the house and redo the interior but neglect to replace the worn roof that prevents any buyer from obtaining insurance on it, it’s all been a waste. The same goes for dramatic makeovers that don’t add real appraised value. When you take time, labor and effort into consideration the ROI is often a lot lower that flipping these homes as is, especially if they can be leveraged with 100% LTV flash funding.

3. Not Necessary

With the presence of discounts, distressed properties in many forms and a variety of motivated sellers combined with rising home values, there is plenty of spread to cash in on without digging in and getting your hands dirty. So why bother?

4. Double Closings Reduce Risk

Not only does rehabbing come with a good share of pitfalls itself, any period of time a property is held means risk and a variety of threats. Using transactional funding for double closings dramatically reduces any risk and ensures greater overall profitability.

 

Real estate investors are finding they are facing fierce competition and new obstacles at every turn today but that doesn’t mean that there aren’t still big profits to be had from flipping houses for those who know how to be resourceful.

Real estate investors face 4 major challenges today:

 

1. Finding viable wholesale deals
2. Getting financing
3. Finding investor friendly professionals to facilitate their transactions
4. Getting more out of their marketing budgets

 

This has been especially true for real estate investors hunting for distressed property deals recently. Sacramento is essential tapped out for REOs, sunny locations such as Key West and Destin, FL continue to see well-priced homes selling in just days and Silicon Valley? You had better be ready to pay well over asking price and bring a trunk full of cash to do the deal on the spot.

The Detroit area was just ranked the 2^nd most affordable U.S. city for buying a home by CNN Money and combined with low home prices and a real estate market which is rebounding faster than most of the rest of the county has created a tremendous demand for any publicly listed REOs and foreclosure auction properties.

Wouldn’t it be great if you could find well-priced wholesale real estate deals, both individual homes and bulk packages without the bidding wars in the best neighborhoods at good prices?

News coverage of the grand opening of My Coordinator LLC a Romeo, MI title agency highlighted the firm’s investor friendly services which include facilitating double closings for those using transactional funding for flipping houses as well as a range of auxiliary services for out-of-area investors needing assistance setting up operations in Michigan.

Press coverage of the event and an interview with the title company owner Erika Weichel also highlighted how the company provides a FREE 6 YEAR MARKETING service to clients with regular follow up to investor’s clients on their behalf, helping to automate marketing and reduce costs. Being wired into the local market and working with many investors and struggling local homeowners as well as maintaining a large database Erika also says she has wholesale properties available for those looking to acquire rental homes or flip houses in Michigan and several other states.

Definitely worth looking into for any investors butting their heads with any of the above challenges and those flipping homes in other states may wish to look for other agents of Continental Title who may offer similar services and be as open to aiding investors...

 

Staying on the right side of the law or at least avoiding extra unwanted attention from the authorities can sometimes be a tricky business when flipping houses. Unfortunately many out dated real estate investment courses and programs provide information that either doesn’t work any more or has become illegal. However, this does not include transactional funding.

Dry closings or simultaneous closings where an investors uses a buyer’s money to fund a double closing and pay the seller are definitely frowned upon and can at the very least get you the wrong type of attention. Plus of course it does pose technical issues with recording deeds in time to satisfy the end buyer’s lender’s requirements which can jeopardize your deals.

Flash funding or transactional funding is different. This type of financing provides you as a real estate investor with the funds to close your A to B transaction with the seller, with real money. Then you can have a separate closing for the B to C side which cashes you out with your end buyer via a cash purchase or their bank financing. This is completely legal, though the mechanics may need to work slightly differently depending on where the end buyer is bringing their funds from.

In many cases you can easily close both ends of your deal within three days often even on the same day. However, in circumstances when the end lender wants to see the recorded deed from the first transaction you may need to wait as long as a couple of weeks. Thankfully the best transactional lenders are now rolling out extended financing options that can give you as much as 40 days to re-pay the loan.

So yes, transactional funding is completely legal and above board, though if course as always it helps to use a title company or closing attorney who is comfortable with this type of real estate deal, knows how to facilitate a smooth transaction on both ends and is familiar with how different lenders require things to be done.