Saturday, September 21, 2013

Breaking Down Transactional Funding For Real Estate Investors

Investing in real estate offers a lot of opportunity for financial growth. Flipping properties, the process of buying at low cost, quickly renovating and selling at much higher cost, is an excellent way to make fast profits. However, you may not always have funds readily available to make purchases, and you don’t want to be in constant loan debt. That’s when transactional funding can help.

What is transactional funding?

Transactional funding refers to a transaction-based short term loan that you use to purchase property that you will turn around and sell. The proceeds of that sale are then used to pay back the loan, allowing you to avoid a long-term debt. The loan is transaction-based because the purchase by you, called the A-B side of the transaction, as well as your subsequent sale to another buyer, the B-C side of the transaction, must already be arranged in order to obtain this type of loan.

What are the advantages?

You can enjoy several advantages from a transactional funding loan versus a regular hard money loan, including:
  • No credit checks
  • No proof of income required
  • No money down
  • Loan covers closing costs
  • Lower loan costs
Credit checks and income verification are not required because the loan is based solely on having a buyer ready to purchase the property from you as soon as you have closed on it. Having the B-C end of the transaction lined up for as soon as you complete the A-B part of the transaction significantly reduces the risk to lenders, allowing for more favorable loan terms than other types of real estate loans could offer. That, plus the fact that the loan is short term, allows transactional funding loans to be less expensive than regular loans. With no money down required, you can capitalize on lucrative properties for which you may not have the funds to purchase up front.

What types of transactions can be funded?

While the loan cannot be used for mobile homes or non-real estate transactions such as vehicle purchases, you can take advantage of the loan for most real estate properties. Qualifying properties include commercial real estate, for sale by owner homes, bank owned/foreclosed homes and apartment buildings. As a savvy investor, you can make an excellent profit purchasing properties at a discount, such as bank foreclosed homes, flipping and selling them at a higher profit margin.

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