Transactional funding has emerged as a cornerstone in the realm of real estate wholesaling, especially in the context of EMD (Earnest Money Deposit) Funding and Double Close Funding. However, it’s important to be aware of the hidden costs associated with this financial strategy. This article sheds light on these costs, helping you make more informed decisions in your real estate ventures.
1. Administrative and Processing Fees
Though transactional funding is not traditional lending, it does involve specific administrative processes. These processes can include application fees, processing charges, and other administrative costs. As noted by OnPurpose Real Estate Lending, a $395 processing fee is typical, along with a flat 3% funding fee for their transactional funding services.
2. Joint Venture Partnership Costs
In a limited scope joint venture partnership, there are inherent costs related to legal documentation, partnership agreement drafting, and possible attorney consultations. UpCounsel emphasizes that these costs depend on the nature of the agreement and are crucial for the legal foundation of your deal.
3. Interest or Profit Sharing in the Deal
While transactional funding isn’t a loan, agreements often include profit sharing between the wholesaler and the funding partner. EquityMax, a transactional funding provider, mentions that 100% of the funds, including closing costs, are financed by them, indicating a profit-sharing model in place (EquityMax).
4. Potential Holding Costs
In Double Close Funding scenarios, where the wholesaler briefly owns the property, there might be short-term holding costs. Sudduth Realty explains that these costs can include property taxes, utility payments, and insurance for the period between the two closings.
5. Risk Mitigation Expenses
Investing in comprehensive risk assessment is crucial in transactional funding, especially in a joint venture setup. Effective risk mitigation strategies, as discussed by Team Sobiko, can include property appraisals, market analysis, and legal consultations.
Conclusion
Understanding the hidden costs of Transactional Funding is vital for successful real estate wholesaling. Being aware of these expenses allows for better financial planning and more effective investment strategies. By staying informed about these costs, wholesalers can ensure their investments are sound and profitable.