Have you ever wondered about double closings or transactional funding but got tangled up in the how, why, and when? You’re not alone! Investors often find themselves scratching their heads, especially wholesalers. This blog dives deep into everything you need to know to understand the basics of transactional funding. Plus, we’ll walk through examples and explore the ins and outs of double closings.
What Is Transactional Funding?
Transactional funding is a brief, quickly repaid loan or fund. Typically, it involves borrowing and repaying on the same day, though occasionally, it may extend up to a week.
This type of short-term financing is a valuable tool for real estate wholesalers, enabling them to acquire and sell properties swiftly without using their funds. Through transactional funding, real estate wholesalers can gain property ownership and promptly resell it to another buyer on the same day, often at a higher price. This unique financing approach provides the necessary short-term support for facilitating seamless back-to-back transactions in real estate wholesaling.
What Is Double Closing?
Double closing occurs when a buyer acquires a property from a seller and promptly resells it to another buyer, securing the profit from the price difference.
During a wholesale real estate double closing, two transactions occur within a brief timeframe, often on the same day.
Transaction 1: The seller sells to the initial buyer, who is typically a wholesaler.
Transaction 2: The wholesaler then sells the property to the end buyer, completing the double closing process
Can You Provide an Example of Double Closing?
Consider this scenario: Mike, the seller, agrees to sell 125 West St to William, a wholesaler, for $100,000. Using transactional funding, William acquires the property for $100,000. On the same day, William resells 125 West St to Sandy, an end buyer and local flipper, for $120,000. In this transaction, William’s gross profit amounts to $20,000; after deducting fees, his net profit is $10,000.
How Do Double Closings Operate With Transactional Funding?
Double closing, also called back-to-back closing, is a strategy wholesalers employ to finalize two transactions simultaneously. In this scenario, the wholesaler (A) purchases the property from the seller (B) and promptly resells it to the end buyer (C). These transactions usually wrap up on the same day or within a few hours of each other.
Here’s how transactional funding is part of the process:
Step 1: The wholesaler secures a contract with the seller (A-B contract) at a negotiated price.
Step 2: The wholesaler then identifies an end-buyer and negotiates a higher price for the property (B-C contract).
Step 3: The wholesaler applies for transactional funding to facilitate the A-B transaction.
Step 4: Once approved, the funds are sent to the title company or closing agent, and the A-B transaction is completed.
Step 5: The funds from the end-buyer (B-C transaction) are used to repay the transactional funding, along with any associated fees. Typically, the lender’s funds providing permanent financing for the B-C transaction are used to settle the A-C transaction.
Step 6: The wholesaler keeps the profit, which is the difference between the A-B and B-C contract prices.
Do You Need Funds for Your Next Deal?
Explore DoubleClose.com for fast and fee-free transactional funding. These deals can be challenging to lock in, so we don’t charge any upfront fees. Reach out to us for the best transactional funding solution!