Trying to understand how private capital moves and this model confuses me. Everyone in a micro-wholesaler network is small and part-time by definition. So when a deal needs a double close instead of an assignment, or the buyer needs two extra weeks, who funds the gap. Does the network hold capital collectively or is that not a thing.
Answer
The network doesn't usually hold capital. It holds relationships with people who do.
Quick definitions since they matter here. In an assignment you never own the property. You transfer your contract to the end buyer for a fee and the buyer's money closes with the seller. In a double close you actually buy the property and then sell it, usually the same day, which means for a few hours you need real money at the table. That's where transactional funding comes in, short-term money that exists to cover exactly that gap, typically priced as a flat fee or a point or two of the purchase price rather than an interest rate, because the term is measured in hours.
So when a network member hits a deal needing a double close, what the network gives them is a name. Somebody in the group has used a transactional lender and can say who funded on time and who didn't. That's the pooled resource. A pooled fund where ten members contribute money to a common pot is a different animal, because taking money from members to invest is where securities law starts applying, and anyone thinking about that needs a securities attorney before they collect a dollar.
On your buyer needing two extra weeks: that's usually solved with an extension from the seller and an amended contract, not with capital. Whether the seller grants it is the actual risk, and it's the one that kills more referred deals than funding gaps do.
Double closes also cost a second set of closing fees and a second transfer tax in states that charge one, which can be a few thousand. That's why most members would rather assign.
The transactional funding thing still surprises people, even after five years of me running a service business. It isn't a loan in the way anyone thinks about loans. It's a fee for money that exists for four hours.
One correction to how the question is framed. The reason a wholesaler double closes is usually not that a deal needs it structurally. It's that the assignment fee is large enough that the wholesaler doesn't want it disclosed on the settlement statement the buyer sees, or that the buyer's lender won't fund an assigned contract. Those are two different problems and only the second one is really about capital.
Run the numbers before you assume the double close is worth it. On a 90k purchase, transactional funding at 1.5 points plus fees is somewhere around 1,500 to 2,500, and the second closing adds title and recording costs again, so figure 3,000 to 5,000 all in depending on the state and whether that state charges transfer tax twice. If the assignment fee is 8,000, you've given up 3,000 to 5,000 of it, call it half, to avoid a disclosure. If it's 35,000 the math looks different.
What @sable hasn't raised is the deal-level risk of relying on a network member's funding contact. Transactional lenders wire against a scheduled closing. If the end buyer's funds slip a day, and yours have already funded the first leg, you now own a house you intended to own for four hours, with no permanent financing lined up. That's the scenario worth writing down before you use the strategy, and it's why some members with thin reserves stay on assignments only, even at a lower fee.
Whether the seller has to be told about the assignment or the fee varies by state, and a few states have tightened this. Get that answered by an attorney where the property sits, in writing.
@rena-expert the stranded-first-leg scenario is exactly what I'd want diligence on before putting money anywhere near one of these groups. Who eats it, the member or the lender? Because if the answer is "we work it out" I've heard enough.