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Transactional Funding vs. Assignments: Why Smart Wholesalers Are Choosing Double Closings
Wholesaling real estate has long been considered one of the fastest ways to generate profits without the need for significant capital or holding properties long term. The two most common methods for completing wholesale deals are:
- Assignment of Contract
- Transactional Funding (also known as Double Closing)
While assignments are simpler and widely used, transactional funding presents a number of key advantages—especially as the wholesaling industry becomes more competitive and regulated.
In this article, we’ll break down the differences between assignments and transactional funding, highlight the key benefits of using transactional funding, and help you decide when it makes sense to use it in your wholesale deals.
What Is an Assignment of Contract?
An assignment of contract is the most straightforward wholesaling technique. It involves getting a property under contract with a motivated seller and assigning your rights to that contract to an end buyer (usually a fix-and-flip investor or landlord). You never actually purchase the property; instead, you sell the contractual right to buy it.
How It Works:
- Find a motivated seller with a property at a discounted price.
- Sign a purchase agreement (contract) with the seller.
- Assign the rights of that contract to an end buyer.
- Collect a fee (typically a percentage of the property’s value) at closing when the buyer finalizes the deal.
Pros and Cons of Assignments
Pros:
- No Need to Bring Funds to Close: Since you’re not technically purchasing the property, there’s no need for large capital upfront.
- Simple Paperwork and Process: The process involves fewer steps and less paperwork than transactional funding.
- Fast Closings and Low Overhead: Assignments are typically completed quickly, with minimal overhead costs.
Cons:
- Full Disclosure Required: Both the seller and buyer must be aware of the assignment, which can sometimes lead to complications or objections.
- Visibility of Your Assignment Fee: Since your assignment fee is typically included in the final transaction amount, it’s visible to all parties involved.
- Legality and Restrictions: Some markets or title companies may limit or outright ban assignment contracts, and certain lenders may not allow assignments in their deals.
- Lack of Control Over the Deal: Since you are simply assigning the contract, you have limited control over the process, and there is a risk that a buyer or seller may attempt to cut you out of the deal.
What Is Transactional Funding?
Transactional funding, also known as double closing, involves two separate but back-to-back real estate closings:
- A-to-B Closing: You purchase the property from the seller (often using short-term funding).
- B-to-C Closing: You sell the property to your end buyer, typically on the same day or within a few hours.
In this structure, you use short-term funding (often between 24-48 hours) from a transactional lender to finance the A-to-B purchase. Once you sell the property to your end buyer, the proceeds from the sale are used to pay back the lender.
7 Major Benefits of Transactional Funding Over Assignments
- Keep Your Profit Confidential: In an assignment, your wholesale fee is visible to the buyer and seller, which could impact your negotiation. With transactional funding, your spread remains hidden, allowing you to protect your profits.
- Protect Your Deal: Double closings provide an additional layer of security by preventing the buyer or seller from trying to cut you out of the transaction.
- Work Around Assignment Restrictions: Many markets or title companies limit or disallow assignments. With transactional funding, you can circumvent these restrictions and continue to close deals that may otherwise be prohibited.
- Sell to Buyers with Financing Restrictions: Many institutional lenders do not allow assignments, especially for properties in their portfolios. With transactional funding, this issue is eliminated because you’re technically purchasing the property before selling it.
- Close More Complex or Higher-Margin Deals: With transactional funding, you can close deals that are more complex or yield larger profits, without scrutiny from the buyer or seller. It provides greater flexibility for more substantial deals.
- Close More Complex or Higher-Margin Deals: With transactional funding, you can close deals that are more complex or yield larger profits, without scrutiny from the buyer or seller. It provides greater flexibility for more substantial deals.
- Qualify for Institutional Deals: Institutional transactions, such as HUD, REO (Real Estate Owned), and auction deals, often prohibit assignments. Transactional funding opens the door for these types of deals, which can be more lucrative.
How Does Transactional Funding Work?
Here’s a step-by-step breakdown of how a typical transactional funding deal works:
- Get the Property Under Contract with the Seller (A-to-B): This involves securing an agreement with the seller to purchase the property at a discounted rate.
- Secure a Buyer and Create a New Contract (B-to-C): Once you have a buyer lined up, you’ll enter into a separate agreement to sell the property to them.
- Apply for Transactional Funding: You apply for short-term funding from a transactional lender to cover the A-to-B closing. The lender typically provides funds within 24 to 48 hours.
- Schedule Both Closings on the Same Day: Work with a title company familiar with double closings to ensure everything runs smoothly.
- Close the Deal: The lender wires funds for the A-to-B closing, and once the B-to-C closing happens, you use the sale proceeds to repay the lender.
Transactional funding helps you stay compliant while keeping full control of the deal.
What Does Transactional Funding Cost?
The cost of transactional funding can vary depending on the lender and deal structure, but here are some common terms:
- 1%–2% of the Loan Amount: This is the most common fee structure, with the fee based on the total loan amount used for the A-to-B closing.
- Flat Fees: Some lenders charge a flat fee ranging from $1,000–$3,000 depending on the size and complexity of the transaction.
- No Payments Required: The funds are repaid at the closing of the B-to-C transaction, so there are no periodic payments.
- 1-Day Use: The funds are typically available for one-day use, but extensions are sometimes available if needed.
When to Use Transactional Funding Over an Assignment
Use transactional funding if:
- Your profit exceeds $10,000, and you want to keep it confidential.
- The buyer’s lender does not allow assignments or has specific restrictions.
- The title company won’t close assignments.
- The seller prohibits assignable contracts.
- You want to protect your deal from being cut out.
- You wish to present yourself as a more professional investor and scale your operation confidently.
Use assignment if:
- Your profit is smaller, and there’s little risk of scrutiny.
- The buyer is a cash buyer and open to assignments.
- You have a title company willing to facilitate assignments.
- The seller is flexible, and the deal is straightforward.
- You’re just starting out and need speed and simplicity.
Why Real Estate Wholesalers Should Embrace Transactional Funding
The wholesaling landscape is evolving rapidly, with new challenges and opportunities. Transactional funding offers wholesalers:
- Greater Control Over the Transaction: You maintain full control over the deal, avoiding potential conflicts and maximizing your profit.
- Enhanced Deal Privacy: Keep your profit margin confidential from buyers and sellers, which can give you leverage in negotiations.
- Access to Non-Assignable Deals: Transactional funding allows you to close deals that may be restricted or prohibited through assignment contracts.
- Protection from Circumvention: Double closings safeguard you from being cut out of the deal by either party.
- The Ability to Scale with Confidence: Transactional funding allows wholesalers to scale their operations, pursue higher-margin deals, and grow into more substantial markets.
If you’re a wholesaler in today’s market, using transactional funding effectively is essential for staying competitive and achieving long-term success.
Final Thoughts
Both assignments and transactional funding have their merits, but for wholesalers looking to maximize profits, maintain confidentiality, and scale their operations, transactional funding offers a clear advantage. As real estate regulations tighten and markets become more competitive, mastering double closings is a strategic move.
If you’re looking to level up your wholesaling business, it’s time to consider how transactional funding can open up new opportunities for you.
Why Choose Investors Choice Funding for Transactional Funding?
At Investors Choice Funding, we specialize in fast, reliable transactional funding for real estate wholesalers. Our process is simple, transparent, and designed to help you close more deals with confidence.
Here’s what sets us apart:
- Same-day approvals and fast funding for quick closings
- Competitive flat fees with no hidden costs
- No credit checks or personal guarantees required
- Nationwide coverage and investor-friendly terms
- Trusted by top wholesalers and real estate investors across the country
Whether you’re closing your first wholesale deal or scaling your business, Investors Choice Funding is the trusted partner you need to help you succeed.
