What is Gator Lending? A Quick Guide to a Complex Topic

Since Pace Morby introduced the idea to the real estate industry, gator lending has grown in importance and complexity. 

Though the term means many things to many people, its underlying definition is its use as a concept of creative financing. As traditional finance becomes less accessible (due to complex requirements), visionaries in the industry have been exploring various creative ways to finance real estate transactions. Gator lending is one of those.

But what is gator lending? This article considers the three ways real estate participants use the term. 

Earnest money deposit financing

The first iteration of gator lending, as Pace Morby explained, had to do with earnest money deposit (EMD) financing. 

In today’s real estate market, it has become a norm for sellers to require that potential buyers pay a deposit (earnest money) to show that their interest in the property is genuine and serious. 

For some buyers, paying EMD is a challenge. Though they have funding sources to pay for the property eventually, they might lack the cash to pay for EMD here and now. 

Gator lending is the process whereby such buyers can borrow EMD from willing lenders at a financing fee. 

Duckfund is one company in the US that provides such gator lending. Real estate investors can get EMD financing for all their deals within just 48 hours without submitting any credit report. Applications can be completed in just 2 minutes and the financing fee is cost effective. 

Transactional funding

Other industry participants use gator lending as a synonym for transactional funding (also known as flash funding or same-day funding).

Transactional funding is a system where a real estate wholesaler borrows money from a lender to purchase a property that will be sold immediately (or in a few days) to a final buyer at a higher price.

Usually, the wholesaler has already agreed to a price with the final buyer so the gator lender is not at risk of a default. 

This financing strategy became popular when many jurisdictions began clamping down on double closing – wholesalers using the final buyer’s funds to purchase the property they want to sell to them. Now they can use another funding source to purchase these properties.  

Transactional funding has been embraced by those who seek to profit from the real estate market but do not have the capital to flip or buy and hold.

The gator method

Pace Morby extended the concept of gator lending to include the building of communities where people can share knowledge, mentor one another, access various types of financing, and form partnerships to execute real estate projects, among others.

The goal of these communities is to foster trust such that people can enter into different types of agreements. For example, two community members can contribute money to buy a property that only one person can’t afford. Also, a community member can take a short-term loan to purchase a property. 

Again, irrespective of how we define gator lending, the focus is on the need for creative financing methods that are accessible and flexible. 

While joining a real estate community and wholesaling properties is optional, most real estate deals now require earnest money deposits. So, gator lending, in the form of EMD financing, has become crucial to the success of investors. 

A company like Duckfund will provide you with the EMD financing you need quickly and efficiently so you can gain a competitive advantage over other buyers.