If your goal is to become a successful real estate investor and create a wealth-building real estate investment portfolio, then you know that financing is an important part of that endeavor. While there are many ways you can get the capital you need to purchase an investment property, there’s one method that’s especially popular with wholesale investors – transactional funding.
Basic Real Estate Investment Strategies
Before we get into the details of what that is and how it can be beneficial, remember that there are several different types of real estate investment strategies.
- Investing for cash flow – You buy rental properties and the rent from tenants covers your expenses.
- Investing for appreciation – You buy a property with the hope that it will increase in value over time and therefore give you a return on your investment.
- Investing to fix and flip – You purchase a fixer-upper home, rehabilitate it, and then resell it at a profit.
- Investing to buy and hold – You buy a property with long-term goals in mind, holding onto the property for at least 5 years and potentially selling it after that for a profit.
- Investing for wholesale – Rather than keeping a property for very long, this strategy involves getting a great deal on a property and then reselling it very quickly thereafter without upgrading or rehabilitating it.
What Is Transactional Funding?
Now that you’re familiar with 5 basic real estate investing strategies, let’s look at what transactional funding is and how it’s beneficial for at least one type of real estate investor.
Transactional funding can be described as a way for investors to get the capital they need for short-term transactions. For example, if a wholesale real estate investor wants to purchase a particular property and then immediately resell it at a profit, this type of funding helps him or her get the needed funds in a very short period of time. Sometimes the purchase of the property with these funds and the subsequent selling of the property happens on the same day – commonly known as a double closing.
5 Key Benefits of Transactional Funding
For wholesale real estate investors, transactional funding can be extremely beneficial. Here are 5 reasons why:
- Easy purchasing power – Most real estate investors can access funds within a very short time period, sometimes as quickly as a few hours.
- Fewer missed opportunities – Rather than missing out on a great deal because funding took too long, seasoned real estate investors can take advantage of the deal because of the ease and speed of transactional funding.
- Speedy investment deals – With the double closing strategy, wholesale real estate investors are able to purchase and then resell properties in a very short period of time. That means they can then move on to the next deal very quickly.
- Increased profits – Since complete title reports and appraisals are typically not required by transactional lenders, investors are able to close the deal with fewer expenses. Lower expenses translate to higher overall profits.
- Asset-based lending – To get financed for a rental property, most real estate investors must have a credit score and income that meets the lender’s standards. With transactional funding, however, investors qualify for a loan based on the asset itself, not their personal income and creditworthiness.
While these are all great advantages and ways to close on a real estate deal very quickly, it doesn’t mean that transactional funding is entirely perfect. First, there is a cost associated with this strategy – most lenders charge anywhere between 2% and 12% of the total original loan amount. Second, transactional lenders typically require that you already have a buyer for the property waiting in the wings. In addition, that buyer must also be pre-qualified for financing.
Learn How to Become a Successful Real Estate Investor
With all of that said, it’s absolutely true that transactional funding has many benefits. And, it’s just one of the financing tools that wholesale investors should be familiar with if they want to capture the best deals and do it quickly.
It’s also important to remember that wholesale real estate investing is not for everyone. For example, my wife and I prefer investing for cash flow and increasing our passive income. This strategy has helped us go from owning $0 in real estate to owning $5 MILLION in real estate by the age of 30. The fact that we’ve been able to create a wealth-building real estate portfolio and achieve financial freedom this early in our lives is the exact reason why we invest in real estate vs. a 401k.
If YOU would like to learn more about real estate investing, you’re invited to subscribe to our YouTube channel. There, we share our real estate investment journey – everything from the mistakes we’ve made along the way to the top real estate investing tips that have helped us become successful real estate investors in the Detroit metro area. If we can do it, you can too!