What Is Transactional Funding in Real Estate | Complete Guide
Transactional funding is a short-term loan used by real estate investors to complete a double closing transaction. It allows an investor to purchase a property and resell it to an end buyer on the same day without using their own capital.
This type of funding is commonly used by wholesalers, investors, and land flippers who have a buyer lined up but need temporary funds to close the purchase.
If you are researching what transactional funding is in real estate, it is usually associated with A-B-C closings, where the investor acts as the middle party between the seller and the final buyer.
Transactional funding is typically used for only a few hours or one day, making it one of the shortest-term financing options available in real estate investing.
How Transactional Funding Works
Transactional funding is designed to help investors complete a double closing without using their own cash.
A typical transaction involves three parties:
A – Original Seller
B – Investor / Wholesaler
C – End Buyer
The process typically works like this:
Step 1 — Investor Contracts the Property
The investor (B) places a property under contract with the original seller (A). Many investors also provide earnest money, which is sometimes funded using EMD funding.
Step 2 — End Buyer Is Secured
The investor finds an end buyer (C) who agrees to purchase the property at a higher price.
The difference between the purchase price and resale price becomes the investor’s profit.
Step 3 — Transactional Funding Is Used
A transactional funding lender provides the capital needed for the investor to purchase the property from the original seller.
This loan is typically used only long enough to complete the double closing.
Step 4 — Double Closing Occurs
Two closings happen:
Closing 1:
Investor buys property from seller.
Closing 2:
Investor sells property to end buyer.
Because the investor briefly owns the property, they can legally collect the spread between the two transactions.
Why Investors Use Transactional Funding
Many real estate investors use transactional funding because it allows them to complete deals without using their own capital.
Some common reasons investors use transactional funding include:
• closing wholesale deals that require double closings
• protecting assignment fees from being disclosed
• completing deals with large profit spreads
• purchasing properties where assignment is not allowed
• working with institutional or MLS buyers
Transactional funding makes it possible to complete these deals even if the investor does not have the cash required to purchase the property.
When Transactional Funding Is Typically Used
ransactional funding is commonly used in situations such as:
Wholesale Deals
When wholesalers want to complete a double closing instead of assigning the contract.
Large Assignment Fees
Some investors prefer a double closing when the profit margin is large so the end buyer does not see the wholesale fee.
MLS or Agent Transactions
Some real estate agents and sellers prefer a traditional closing instead of contract assignments.
Institutional Buyers
Certain buyers only purchase properties through standard closings.
Transactional Funding vs EMD Funding
Transactional funding and EMD funding serve different purposes in a real estate deal.
Transactional Funding
Used to purchase the property during the closing process.
EMD Funding
Used earlier in the process to provide earnest money deposits when placing a property under contract.
Many investors use both types of funding in the same deal.
Example:
- EMD funding is used to secure the contract.
- Transactional funding is used to complete the double closing.
Transactional Funding vs Assignment of Contract
Many wholesalers use assignment of contract to sell deals.
However, assignments have limitations.
Assignments may not be allowed when:
• working with agents
• selling properties on the MLS
• dealing with institutional buyers
• contracts restrict assignment
In those situations, investors may choose to complete a double closing using transactional funding.
What Types of Deals Can Use Transactional Funding?
Transactional funding is used across many types of real estate transactions including:
• residential properties
• investment properties
• land deals
• commercial real estate
• fix-and-flip opportunities
Land investors often use transactional funding when flipping land to another investor or builder.
Requirements for Transactional Funding
Most transactional funding lenders require a few key things before funding a deal.
These often include:
• a signed purchase contract with the seller
• a signed resale contract with the end buyer
• proof the end buyer has funds to close
• a closing attorney or title company
The lender typically verifies that the end buyer’s funds will repay the transactional loan at closing.
How Long Transactional Funding Lasts
ransactional funding loans are extremely short term.
Most loans last:
• a few hours
• one day
• occasionally up to 48 hours
The loan is repaid immediately when the end buyer closes on the property.
Because the loan is so short, transactional funding is usually structured as a flat fee instead of interest.
Benefits of Transactional Funding
Transactional funding offers several advantages for investors.
Allows Investors to Close Without Their Own Cash
Investors can complete deals even if they do not have the capital required to purchase the property.
Protects Profit Margins
Double closings allow investors to keep their profit private.
Expands Deal Opportunities
Some deals cannot be completed through assignments, but transactional funding allows the deal to close.
Speeds Up Deal Execution
Having funding available can make it easier to close deals quickly.
Common Questions About Transactional Funding
Is transactional funding legal?
Yes. Transactional funding is a legitimate financing method used by many real estate investors and lenders.
How much does transactional funding cost?
Costs vary depending on the deal size and lender, but most lenders charge a flat funding fee.
Do I need good credit?
Most transactional funding lenders focus primarily on the deal itself and the end buyer rather than the borrower’s credit.
Can transactional funding be used for land deals?
Yes. Many investors use transactional funding when flipping land to another buyer.
Final Thoughts
Transactional funding is a powerful tool for real estate investors who want to complete double closing transactions without using their own capital.
By providing short-term capital to purchase a property before reselling it, transactional funding allows investors to close deals that might otherwise be impossible.
Many investors combine transactional funding with earnest money deposit funding to secure and close deals more efficiently.
If you want to learn more about these strategies, you may also find these guides helpful:
• What is Double Closing Funding
• What is EMD Funding
These resources explain how investors use funding strategies to complete real estate transactions with limited upfront capital.