Gator Lending: What It Is and How the Math Really Works

Educational only. This explains how these situations generally work. It is not legal, tax or financial advice, and the rules differ by state — talk to an attorney or CPA about your own situation before you act on any of it.

What gator lending actually is

The term was popularized in Pace Morby’s subject-to community, where a “gator” is anyone who supplies a piece of a deal so someone else can close it. The most common version is simple: an investor has a signed contract that requires an earnest money deposit today, their own cash is tied up, and a gator wires the deposit to title in exchange for a fee paid at closing.

The community uses the word loosely. It can also mean sponsoring a loan (someone qualifies for financing so the investor can then buy subject-to) or funding the first leg of a double close. This guide sticks to the two that matter most to wholesalers: EMD funding and transactional funding. If you only need the deposit covered, that is exactly what our EMD funding service does.

Three things make it different from ordinary private money:

• Duration is days or weeks, not months. The loan is meant to be taken out by the closing itself, or by a longer-term lender at closing.
• The fee is flat, not an interest rate. The borrower pays a fixed dollar amount whether the loan runs 8 days or 25.
• The security is thin. A gator’s protection is the contract language, the escrow instructions and the borrower’s written promise — not a recorded lien on the house.

The San Angelo walkthrough, step by step

The clearest public example is a two-part series on Pace Morby’s YouTube channel: Investing Cheat Code! | LIVE Zero Down Subto w/ Gator Method (June 2023) and Contracts for Earnest Money Deposits | Gator Method (June 2023). Here is what happens, paraphrased.

Two of his students lock up a subject-to deal on a single-family house in San Angelo, Texas. The existing loan is at 3.625% with a payment of about $2,008 a month including taxes and insurance. The seller is roughly ten months behind, about $22,000 in arrears, and walks away with no cash in hand. The listing agent, who could not sell it conventionally, gets paid $6,800. The students assign the contract to Pace for a $10,000 fee.

The contract requires a $5,000 deposit wired to title the same day. Pace has just paid off his own private lenders and does not have the cash free, so he calls a gator lender in his community. In a call of about three minutes they agree on a flat $3,000 return for wiring the $5,000, to be repaid in roughly ten days when a longer-term private money lender funds the purchase.

In the video the entry cost is listed line by line and rounded to about $41,000, with the deposit counted as one of the lines. Add the lines up and they come to $46,800. The numbers only reconcile once you treat the deposit the way a settlement statement does — as a credit toward the buyer’s charges, not an extra cost:

So the roughly $44,000 private loan in the video is about right; the $41,000 “total” is really the charges, before the deposit is credited. The private lender funds the closing, the gator gets $5,000 plus $3,000 back through the settlement statement, and Pace brings nothing of his own. The gator never touches the house. The gator is paid because the closing happens, and the takeout loan has to be sized to include the gator’s payoff.

Where gator money sits in the capital stack

Operators confuse these three all the time, and it leads to the wrong lender for the job.

Transactional funding is the gator role most wholesalers already know from the double closing vs. assignment decision. EMD money comes earlier in the life of the deal, which is exactly why it carries more risk: it is out before anyone has confirmed the title, the payoff or the arrears.

The return, computed honestly

In the first video the annualized figure is worked out on camera and revised several times. Here is the arithmetic done cleanly.

The fee is $3,000 on $5,000, which is 60% for the loan term. If the term is exactly 10 days, a simple annualized rate is 60% × (365 ÷ 10) = 2,190%. That is the number you will see quoted.

Now look at what actually happened. In a follow-up segment, Pace and the lender confirm repayment took about a month, not ten days. Same 60%, 30-day term: 60% × (365 ÷ 30) = about 730% (the video rounds it to 720%). One delay, which is normal in closings, cut the annualized number by two-thirds, and the dollars earned did not change at all.

That is the operator insight most gator pitches skip: a flat fee rewards speed only if the next deal is already waiting. The annualized number assumes the $5,000 goes straight back out, at the same fee, every 10 days, all year, with zero deals dying. Real lending does not look like that. Money sits idle between deals. Deals cancel. Deposits get stuck in escrow disputes for weeks. Fees get negotiated down when borrowers have alternatives.

A more honest way to judge a gator loan is dollars per deal and dollars at risk, not an annualized rate. Here is a hypothetical to show how fast the math shrinks — not a forecast and not a typical result. The same $5,000 goes out six times in a year at the San Angelo fee. One deal dies in inspection and returns only principal. One deposit sits frozen in an escrow dispute for 60 days. That is five fees, $15,000 on $5,000: 300% for the year, not 2,190%. And that version still assumes six borrowers found you, every takeout lender funded and no deposit was lost. One forfeited deposit owed by a borrower who can’t pay costs the full $5,000, a third of that entire hypothetical year.

Risks for the gator lender

• The refund goes to the wrong person. If the buyer cancels and escrow refunds the deposit to the borrower instead of you, you are now chasing an unsecured debt. Fix it with a contract clause that lets the buyer designate who receives the refund, and written instructions to escrow naming you. The mechanics are in our guide to EMD loan contract protections.
• Escrow won’t release without the seller. Many title and escrow companies require both parties to sign a release no matter what the contract says. In the second video the title officer says exactly that, and the fix is a pre-signed release on title’s own form.
• The deposit goes hard. If the inspection period passes and the deal later dies, the deposit may belong to the seller. You need a written agreement that makes the borrower personally liable for principal and fee in that case — and you need a borrower who can actually pay.
• The fee usually depends on the closing. A fee paid “at closing” may not be owed at all if the deal cancels, unless your written agreement says it is. If it does, you are collecting from someone who borrowed because they were short on cash. Decide up front whether a clean cancellation returns principal only.
• The San Angelo fee is one data point, not a rate card. It was a rush price agreed in minutes for a same-day wire. Fees are negotiated deal by deal, and a borrower with other options will not pay it.
• Wire fraud. Before any wire, confirm title’s instructions by phone at a number you sourced independently — the company’s website or a prior closing, never the email that carried the instructions — and treat any change to instructions as fraud until verified. The CFPB’s guide to mortgage closing scams is written for homebuyers, but the advice is the same for lenders.

Risks for the borrower

• You are personally on the hook. Borrowed EMD is still your contract risk. If you default on the purchase after the deposit goes hard, you lose the deposit and still owe the gator.
• The fee is fixed; your spread is not. A $3,000 fee on a $10,000 assignment is 30% of your fee. If the arrears come in high and the spread drops to $6,000, the same fee is half of it.
• Your takeout has to be real. In San Angelo the gator is repaid by a private lender who had not yet funded when the deposit went out. If that lender flakes, the gator’s clock keeps running.
• Disclosure matters. Tell title where the money came from before it arrives. Surprising an escrow officer with a third-party refund request at cancellation is how deposits end up frozen.

Usury and licensing vary by state. An EMD or gator loan is a private, business-purpose loan, and a flat fee on a short loan can be treated as interest when a court or regulator does the math. Usury limits and lender-licensing rules differ from state to state, and in some states they can apply even to business loans. Check your state before you lend or borrow.

Educational only — talk to a real estate attorney in your state before you rely on this.

How Restar handles gator-style EMD funding

Restar Acquisitions is a family-owned principal buyer of single-family homes, and Trevor McAmis underwrites deals personally. Through our EMD funding program we fund earnest money deposits short-term for investors and wholesalers on business-purpose deals. Repayment comes at closing through the settlement statement, for a flat fee we quote per deal before any money moves.

What we do: read the contract for the refund clause, confirm escrow and the wire instructions by phone at a number we source ourselves, get our role acknowledged by title in writing, and put the terms in a short signed agreement. What we won’t do: fund owner-occupant or consumer purchases, fund a deposit without seeing the contract, or promise a speed we can’t hit. We reply the same business day. This page explains how we fund deposits for borrowers; it is not an offer to invest with us or lend alongside us. If the deposit is the only obstacle, see how much EMD a wholesale deal really needs, then send us the deal.

Common questions

What is gator lending in real estate?

It is short-term private money that fills a specific gap in a deal, most often the earnest money deposit or the first leg of a double close. The lender is repaid, usually with a flat fee, out of the closing.

How much do gator lenders make?

There is no standard rate; fees are negotiated deal by deal. In the San Angelo example the lender was paid $3,000 on a $5,000 deposit, a rush price agreed in minutes. Annualized figures assume the money is re-lent immediately all year with no dead, stuck or lost deals, which rarely happens, so judge a loan by dollars per deal and the risk of losing principal.

Is gator lending legal?

Private business-purpose lending is generally legal, but usury limits and lender-licensing rules vary by state and can apply to business loans in some states. Lending to owner-occupant consumers brings in additional consumer-lending rules. Check with a real estate attorney in your state.

What happens to a gator loan if the deal falls through?

If the buyer cancels within the inspection period and escrow releases the deposit, the principal comes back, ideally directly to the lender. The fee is normally paid from closing, so the written agreement has to say whether the borrower still owes it.

Is gator lending the same as transactional funding?

No. Transactional funding pays for the A-to-B purchase in a double close and is usually repaid the same day by the end buyer's funds. EMD gator money goes out earlier, before title and payoff are confirmed, and sits at risk longer.