What is Transactional Funding for a Real Estate Closing?
Transactional funding is a strategy commonly used in real estate transactions, and it plays a crucial role in facilitating the seamless completion of deals, particularly in the dynamic real estate market of Florida. This form of short-term financing allows real estate investors to secure immediate funds for their transactions, regardless of their own financial resources or creditworthiness.
In Florida, a state renowned for its thriving real estate market, transactional funding has gained popularity due to its flexibility and effectiveness. It is primarily utilized in scenarios where investors intend to acquire a property with the intention of quickly reselling it, commonly referred to as “flipping” properties.
One of the significant advantages of transactional funding is its short-term nature. It involves a brief borrowing period, often ranging from 24 hours to a few days. This temporary financing mechanism allows investors to close their initial purchase transactions without relying on their own funds. Instead, they utilize the funds provided by a transactional funding provider.
When engaging in real estate transactions with transactional funding, the investor follows a specific process. Firstly, they secure a purchase contract for a property they intend to acquire and then immediately locate a buyer interested in purchasing the property from them at a higher price. With both the purchase contract and the resale contract in place, the investor approaches a transactional funding provider to secure the necessary funds to acquire the property.
Transactional funding providers in Florida typically assess the viability of the transaction based on the property’s potential resale value and the investor’s ability to find a buyer quickly. As the transactional funding provider assumes the risk associated with the initial purchase, they generally charge a fee, often referred to as a “funding fee” or “assignment fee.” This fee is typically a percentage of the loan amount or a fixed amount.
Once the transactional funding is secured, the investor uses these funds to complete the purchase of the property. Subsequently, they sell the property to the pre-arranged buyer, thereby repaying the transactional funding provider in full, along with the agreed-upon fee. The investor retains the profit generated from the difference between the purchase and resale prices.
Transactional funding in Florida has become a valuable tool for real estate investors, particularly those involved in time-sensitive deals. It allows investors to take advantage of opportunities quickly, maximizing their potential profits. By leveraging transactional funding, investors can navigate the vibrant Florida real estate market with greater ease and flexibility, fostering continued growth and success in their endeavors.
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