When I first left banking to run a fund, I had not yet fully embraced the entrepreneur mentality. I was still stuck in the corporate brainwashing that had been part of my “professional upbringing” since I graduated from college and went into the management training program for one of the largest institutions in the country. My eyes were fully opened when I stepped out.
I was managing a small commercial non-performing loan based fund when a deal came across my desk that was too good to be true. The deal was on a large retail center that is built at the height of the last boom…right before the crash. The purchase price, however, was considerably more than we had in the coffers at the time. I had buyers for the property if I could simply come up with the cash to do it. One of the guys that was working with us at the time blurted out, “Why don’t you just tranx fund it?” Tranx is this instance was slang for Transactional Funding. I had the end buyer already on the line for more than we were going to have to pay for the loan. All I needed was the money. Transactional Funding, although expensive, seemed to be the answer.
In Transactional Funding, you have three parties…A, B, and C. Party A is the current owner of the property or the note holder, Party B was us…in essentially a wholesaling capacity, and Party C was our end buyer. We quickly hooked up with a private Transactional Funder that, on the day of closing, wired in the amount we needed to purchase the loan. In this instance, the selling institution gave us permission to chat with Party A, the borrowers, prior to closing, which allowed us to negotiate and sign a Deed In Lieu of Foreclosure document. I walked in to the closing agents office and signed the paperwork to purchase the note, added the Deed In Lieu paperwork to the file, and then went directly into my second closing of the day, my sale of the property to the end buyer…Party C.
Transactional Funding like this classic “A to B, B to C” transaction is tricky in most cases, but it allowed me to walk out of the closing with a check for more than $150,000 for our work. We couldn’t have done it without the Transactional Funding. It’s an advanced concept, but one that can be mastered with the right guidance and team in place.