I have been funding transactional or “same-day” closings (wholesale flips) for real estate investors for many years. This same-day practice enables investors with limited funds and/or poor credit to engage in wholesale deals and generate substantial profits. Often, these investors have had to put up an Earnest Money Deposit (“EMD”) when they contracted to buy the property. Still, these amounts are minimal in comparison to the amount of money they need to purchase their properties.

These wholesale flips are often referred to as an A-B and B-C transaction or “double closing”. The letter “A” refers to the original seller, letter “B” refers to the investor, and letter “C” refers to the end-buyer. At the closing table, the original seller closes with the investor, who borrows enough money to purchase the seller’s property, and only for the duration necessary to complete the transaction. As soon as possible that day, the investor then closes with their end buyer, pays off the transactional funder, and the investor wholesaler pockets the profit on the deal. His only investment is his EMD, which in many cases can be “zero” when you better understand the funding process.

These wholesale flips are often referred to as an A-B and B-C transaction or “double closing”. The letter “A” refers to the original seller, letter “B” refers to the investor, and letter “C” refers to the end-buyer. At the closing table, the original seller closes with the investor, who borrows enough money to purchase the seller’s property, and only for the duration necessary to complete the transaction. As soon as possible that day, the investor then closes with their end buyer, pays off the transactional funder, and the investor wholesaler pockets the profit on the deal. His only investment is his EMD, which in many cases can be “zero” when you better understand the funding process.

Our issue as transactional funders is that too many times, the end-buyer’s hard money lender “changes” his mind at the last minute and doesn’t close. At this point, everyone in the transaction, including the closing agent, realtor®, seller, investor, and end-buyer, is losing money, except the hard money lender! We have even seen instances where hard money lenders decide to change the terms of their funding, suddenly requiring that they become a partner of the end-buyer, or simply add more junk fees, closing points, and increase the interest rate on the loan.

I have seen many wholesalers selling their deals by advertising “Funding Available” on their wholesale lists. Obviously, the end-buyers must qualify for the loans, but the hard part of not knowing if a buyer will qualify is shifted to the hard money lender you are now working with, rather than against. Yes, it sometimes seems that hard money lenders are working against your best interests, as they continually request more documentation or charge excessive fees.

An option can be for the investor to purchase from the original seller with “seller financing” in place, which can be transferred to the end buyer. This is an ideal situation because there is no loan qualifying, and the closing process is seamless. Make sure that the mortgage and note the seller receives are assignable to make the process as smooth as possible.

Before you secure a buyer for your deals, ensure the hard money lender is on board for the transactional funding leg of the closing. Ironically, many hard money lenders are skeptical of transactional funders, and may have huge Origination Fees, Broker Points, Document Prep Fees, and other “Junk Fees”. I recently saw a disclaimer in small print that stated, “Broker may charge additional points above the advertised rate,” which is essentially a way for lenders to increase their profits on loans.

In summary, review the actual closing costs you must pay before closing and have more than one lender in place in case your first choice changes their fees, or so you are certain they will process your loan.

To your limitless success,
Dave Dinkel

Frequently Asked Questions

“After participating in over 10,000 wholesale and retail closings, the risk of not closing for end buyers whose lender is a hard money lender ranges from 30% to 40%. If a hard money lender requests money to “open the file” for the borrower, the chances of the investor securing a loan drop to 5%.”

“Because this is such a common occurrence, I conducted an in-depth analysis of thousands of failed transactions. There are 20 reasons why sellers and end buyers don’t close. It led me to write an eBook on the subject, titled “Force Sellers and Buyers to Close,” available at www.DaveDinkel.com/Products”

“There are 12 ways to fund EMD with no money from the investor wholesaler. The solutions range from borrowing the EMD from friends and family members to specific contract clauses. The complete text (“No END No Problem”) can be seen at www.DaveDinkel.com/Products”

“Hard money and transactional lenders have completely different mindsets. Transactional lenders only care about the end buyer in the double closing to send in his funds to close. The investor’s credit or the property value does not matter. With a hard money lender, the borrower’s credit, experience, and property value are critical. The transactional lender can be ready to close in a few hours, while the hard money lender can take weeks to make their decision.”

“In a recent transaction where we were requested to do transactional lending, the hard money lender backed out the day before the double closing. The listing agent for the property lost her commission ($22,000), the investor lost his profit on the deal ($62,500) and his EMD ($10,000), the closing agent lost about $3,500 in hard costs, and the end buyer had given the hard money lender a $5,000 due diligence fee which was lost. Total loss approximately $103,000!” The red flag warning in this transaction was the $5,000 fee paid to the hard money lender who likely had no intention of funding the transaction, just scamming the borrower out of his money.”

“A hard money lender changing his terms at closing is a common practice, happening in about 27% of all closings. In many cases, lenders add fees that were not previously disclosed to the borrower. Had they been properly disclosed to the borrower, they would have had time to find another lender. This is a predatory practice and is considered an “unethical business practice,” which is a misdemeanor in many states. However, the perpetrators are rarely brought to trial.”

“When I ask investors, ‘Where did you hear about us?’, the most common answer is from another investor referring us. Secondly, many investors search Google® for ‘transactional funding.’ We also find investors who ask their AI provider to identify the best transactional funders. These results vary greatly and seem not to consider integrity, years of experience, costs to borrow funds, and other pertinent parameters.”

“We try to do every wholesale transaction of ours with some amount of seller financing. It allows the investor to put up less money on the initial A–B closing and the end buyer to bring less money to close. To structure it correctly, the original seller must be questioned about their intentions for the proceeds from the sale. If they are going to put them in a bank or Certificate of Deposit, we can offer better yields and liquidity. We also try to give the seller some ‘get away’ money, usually 10% of their sale price.”

“We find that closing agents either understand double closings or reject them as illegal! Make sure you quiz a prospective closing agent about what you want to do and that they know that you will not be using the end buyer’s funds to purchase the property. This is such a problem that we publish a list of ‘investor-friendly’ closing agents to save investors time and aggravation finding a suitable closing agent.”

“We tell investors who have told us their end buyer is getting a hard money loan to personally contact his lender ahead of time. The warning signs are that the lender doesn’t send loan documents to the closing agent on time, charges an upfront fee, and tells the borrower that he will get the fee back as a credit at closing, and will not give the borrower proof of funds to show that he has the funds to loan. The only protection is to keep marketing the property for sale and take backup contracts.”