Transactional funding loans (“Flash Cash”) are a new lending product and procedure to the residential real estate industry, most commonly used in short sale or flip transactions. The product is born from increased scrutiny and regulation in our business, and the refusal of most title companies to perform simultaneous closings.
These new title company and lender rules are having a big impact on pre-foreclosure real estate investors and agents who negotiate short sale transactions. Double closing flip transactions using the end-buyers money to fund the initial purchase of the property is rarely allowed, even by small “investor friendly” title companies.
Today, in most cases, investors must fund their purchase contract and separate the two transactions – Side A to B closing and then Side B to C closing. This procedure is called a “Back-to-Back Closing.”
For many investors, financing this new type of double closing, the solution to this is Transactional Funding, sometimes called “Flash Cash.” Here is how it works, step-by-step:
- Investor – (B) – executes contract to purchase property from Current Owner – (A).
- Investor – (B) – contracts to sell property to end-user – (C).
- Investor submits both buy and sale contracts to title and escrow company.
- The Transactional Funding Lender – (S) – commits to fund the Side A to Side B Closing.
- The End Buyers Lender – (L) – commits to fund the Side B to Side C Closing.
- The Title Closer arranges to close between the Seller and Investor, and then closes between the investor and the end buyer.
- When both transactions have closed, the deed is passed to the end buyer in trust with Buyer’s Lender.
- Title company distributes proceeds to the Current Owner
- Title company pays back the investor’s transactional loan,
- Title pays the real estate investor the profits from the transaction.
{ 11 comments… read them below or add one }
does the buy have to pay 100% of the sales price or can he put down 10-20% and fund the rest?
what are the terms and rates?
Kent – The terms are transactional funding only, final sale must be approved. You can watch any of the transactional funding training videos to learn about the process. In case you missed it, here is the link to the transactional funding fees. Thanks for your interest.
Transactional funding is usually 100% funds since the loans are paid back quickly. You are certainly free to put down money, but I don’t see any advantage to you or any other investor in doing that. If you need longer term loans, you can search for hard money loans or a fix and flip loan with a local bank. Either of those types of lenders will likely require a down payment.
Where can I find contract examples for what the investor would use in the A to B transaction and also the B to C ? What are the “subject to” or other contigency clauses that should be written in if needed?
How does it work if the end buyer in the B to C part backs out of the deal, do the funds have to be taken back from the A to B seller?
We always use the state real estate commission contracts and recommend our clients use them also. It is a good idea to include this disclosure in the “additional provisions” section of your side A to B contract: “Buyer is a professional investors and intends to resell the property at a profit.” It is also strongly recommended that you include this provision in your side B to C contract: “Specific performance provision for this contract is contingent upon seller obtaining clear and marketable title on or before closing date.”
Can the A be a C also?
If you are talking about “dual contracting” then no, that is illegal. Dual contracting is when you write two contracts for two different amounts to influence the loan amount.
Does the 100% financing include monies beyond the purchase price. ie; fix up costs?
Thanks for your interest. We do not lend fix up costs, only purchase money on wholesale property being resold immediately. You will need to search for a local hard money lender if you plan to fix and resell.