Transcript:
Chris Bounds 00:00
So how’d you get started in transactional funding?
Phillip Thai 00:02
Oh, transactional funding? So that’s a good question. So and
Chris Bounds 00:08
continue with that, but also also define what transactional funding is for folks who don’t quite know what that is.
Phillip Thai 00:14
Sure. So, transactional funding. Basically, if you have, I’ll just do an easy example, because I think everybody can relate to this. If you’re buying a house, you need to put some kind of earnest money deposit down to make sure that you as a buyer is very serious on buying this particular property. Now, as a wholesaler, you may not have or you may have the funds to do a earnest money deposit, however, you might have multiple deals in the fire. And that might take away from your marketing efforts or your overhead efforts. And so let’s say your earnest money deposit is $5,000 to a property. And let’s say you don’t want to forget that out, which is totally fine.
This is where I can help with that. So if you’re looking for earnest money deposit for a property, I’m willing to fund that earnest money deposit, as long as it’s refundable, as long as that you have a steady period of sort of mine days. So I know that I’m able to get my deposit back. And how I get paid is more of a profit sharing model with a joint venture. Since I’m coming up with the money, I use the command between one to $4,000 Return back when on top of that $5,000. Once you either assign the property to another in buyer as a wholesaler, or if you decided to take it down, then I would get paid at closing. Or if you’re looking to do a different kind of exit, like a hotel situation, then that would be kind of a different structure as far as repayment. But more or less the same concept here is I can spot you the earnest money in return of of a of a return on my end, like either one to $4,000 typically agree upon.
Chris Bounds 02:08
And since it’s not a at least, it doesn’t seem like a traditional loan with hard money loan because there’s profit sharing. So how do you set that up? Are you just doing a separate JV agreement? With their entity? Are you having them carve out like addendum to their entity that they give you certain interest on the transaction? How does it work?
Phillip Thai 02:31
So basically, my partners and I, we just do a joint venture agreement between the two LLC s. And then also we have a personal guarantee for that funds. With that joint venture agreement. On top of that, if it’s a earnest money deposit, we have a another document that we end up sending them it’s like an earnest, irrevocable earnest money document where they’re signing for the money that we are actually giving to escrow on their behalf. so as to form the documents, that’s just for the earnest money deposit. Now for gap funding is a little bit different. But more or less of the same joint venture, we put a second lien on the property, if it closes, if it if it does a double close, then that’s lien will come off on the second close once everything is you know, returned plus interest or whatever it may be. So depending on the situation will determine what kind of paperwork will be used on the on the transaction type. Yeah, okay.
Chris Bounds 03:43
Yeah, buddy of mine does the gap funding and I collaborate with him? But this is a multifamily large multifamily, where you’ve got to raise 5 million, maybe you raise four, but you need the other million to close and you’ll finish raising it post closing where come in loan the million and it’s it’s a, you know, a variation of interest origination and equity. Kind of depends on the situation. But I like that model. Is it definitely, as a, like you, I’ve done a lot of flips. And that money out is taxing on cash flow and cash flow or lack thereof is what kills businesses. So yeah, if you can minimize that to a certain point, then it can definitely help operations or help you grow.
Phillip Thai 04:34
Most definitely. And I mean, like this type of lending, or I guess, joint venture, I should say, kind of caters to smaller, I guess smaller deals because not a hard money lender or prime minister is going to spend their time to fund a $500 or $1,000 EMD or find out a million gauges doesn’t make any sense for them. So this is where this would be a good opportunity for people like wholesale was to kind of leverage and most people most I might lenders won’t go into second position period as it’s not how they operate. And so there is a caveat to that too as well. Yeah, love it.