{"id":77190,"date":"2017-01-30T05:00:28","date_gmt":"2017-01-30T12:00:28","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=77190"},"modified":"2024-02-23T16:07:51","modified_gmt":"2024-02-23T23:07:51","slug":"2016-03-07-under-contract-dont-have-money","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2016-03-07-under-contract-dont-have-money","title":{"rendered":"You\u2019re Under Contract But Don\u2019t Have the Money Raised: Here&#8217;s What to Do"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/Lprp_5mCYiU\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>You managed to get a killer <a href=\"\/renewsblog\/2013\/04\/09\/how-to-buy-a-small-multifamily-property\/\" target=\"_blank\">multifamily deal<\/a> under contract but don\u2019t have all of the money raised &#8212; what to do?<\/p>\n<p>This \u201cfear of success\u201d keeps many newbie multifamily investors on the sidelines. They\u2019ve been looking for deals while trying to raise money from private individuals. They come across a good deal but don\u2019t have all of the funds committed yet.<\/p>\n<p>And so they STOP pursuing the deal.<\/p>\n<p>Because they\u2019re afraid.<\/p>\n<p>This is a mistake for at least TWO reasons:<\/p>\n<h3>Reason #1: They underestimate the value a good underwritten and pre-negotiated deal.<\/h3>\n<p>Especially these days, finding good multifamily deals is tough. So when you have a deal that you have at least verbal agreement from the seller on a number that makes sense after rigorous and conservative underwriting, you have something of value.<\/p>\n<p>Even if you DON\u2019T end up closing on the deal, there will be a LONG line of people who would die to get their hands on a deal like that.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-77096\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/paper-investments.jpg\" alt=\"paper-investments\" width=\"702\" height=\"337\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/paper-investments.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/paper-investments-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h3>Reason #2: You should always walk through open doors until they close<\/h3>\n<p>In my 11 years of being a full-time entrepreneur, I have learned that the universe gives you opportunities all the time. Many times we don\u2019t see them &#8212; or more frequently, we fail to take advantage of them because we\u2019re afraid.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2015\/07\/24\/raised-5-million-buy-apartment-complex-in-weeks-while-vacationing-beach\/\" target=\"_blank\">How I Raised $5 Million to Buy an Apartment Complex in 2 Weeks \u2014 While on the Beach<\/a><\/em><\/p>\n<p>I have found that when we walk through the open door presented to us, magical things happen that we never thought possible.<\/p>\n<p>Therefore, it\u2019s a new rule for me that if a door opens that is aligned with your purpose and goals, you should keep walking through the door until it\u2019s permanently closed. Don\u2019t give up until then.<\/p>\n<h2>The \u201cWorst Case Scenario\u201d Exercise<\/h2>\n<p>Sometimes we fail to do something because we\u2019re afraid of what COULD happen &#8212; even if the likelihood of that happening is remote.<\/p>\n<p>One exercise I like to do when I\u2019m afraid is to write down all of the \u201cbad\u201d things that could happen. I find that once I see them on paper, they don\u2019t seem that bad, and my fear becomes manageable to the point where I can continue to take action.<\/p>\n<p>Let\u2019s do that exercise for this particular situation.<\/p>\n<p>Let\u2019s assume you found a 15-unit apartment building, <a href=\"https:\/\/www.biggerpockets.com\/blog\/real-estate-investment-analysis\" target=\"_blank\">analyzed it<\/a>, and made an offer. The seller countered, you sharpened your pencil, and continued to negotiate a price works.<\/p>\n<p>It&#8217;s actually a smokin\u2019 hot deal.<\/p>\n<p>But you need about $250,000 in cash to close on this deal, and you&#8217;ve only raised $50,000 of it from friends and family.<\/p>\n<p>Let\u2019s further assume that you chose to continue walking through the open door. You decide to submit a letter of intent.<\/p>\n<p>In the time it takes to negotiate and sign the letter of intent, you have three to five\u00a0extra days to call potential investors.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-76950\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/scale-wholesaling-business.jpg\" alt=\"scale-wholesaling-business\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/scale-wholesaling-business.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/scale-wholesaling-business-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<p>You also decide to work on Plan B, which is to call other potential investors who might be interested in buying this deal from you. You could either partner with them, refer the deal to them, or <a href=\"\/renewsblog\/2015\/01\/31\/ultimate-beginners-guide-real-estate-wholesaling-2\/\" target=\"_blank\">wholesale the deal<\/a> to them.<\/p>\n<p>To pursue this plan of attack in parallel, you visit every real estate club\u00a0meeting in a 20-mile radius and pitch your deal. You call brokers, property managers, and other professionals who might be able to put you in touch with owners of similar buildings. You network on sites like the BiggerPockets to look for people who already own multifamily buildings like this.<\/p>\n<p>You get the letter of intent signed. You now have seven business days to submit a purchase contract. Getting the contract ratified takes another five days. You now have an extra two weeks to raise money or find another buyer or partner.<\/p>\n<p>Now you have 21 days to complete due diligence. This gives you at least an extra two weeks to raise the money or find another buyer.<\/p>\n<p>Since submitting the LOI, you&#8217;ve had almost an entire month to raise the extra money or to find someone else who would assume the contract. This is probably more time than you realized!<\/p>\n<p>You have a good deal, and plenty of people are either looking for somewhere to put their cash or to buy a multifamily building that has been hard to find.<\/p>\n<p>Worst case, if despite all of these efforts you FAIL to raise the money or find a single person who wants the deal you\u2019ve delivered to them on a silver platter, you can always exercise the due diligence termination clause in your contract.<\/p>\n<p><em><strong>Related:<\/strong> <a href=\"\/renewsblog\/2014\/09\/25\/8-of-the-best-ways-to-raise-capital-for-your-invesments\/\" target=\"_blank\">8 of the Best Ways to Raise Capital for Your Investments<\/a><\/em><\/p>\n<p>If you construct your contract correctly, you can terminate the contract for ANY reason before the due diligence period expires.<\/p>\n<p>(While you can exercise this clause for ANY reason whatsoever, I would caution you to either have a GOOD reason or at least try to preserve the respect of the broker. Otherwise, you will quickly develop the reputation for \u201cnot closing\u201d and wasting everyone\u2019s time).<\/p>\n<h2>What\u2019s the Lesson?<\/h2>\n<p>Once we complete this \u201cworst case\u201d exercise, we realize that there\u2019s a good chance you\u2019ll actually raise the money.<\/p>\n<p>But if you don\u2019t, then it\u2019s even more likely that you\u2019ll find another buyer or partner who would die to take this deal off your hands and add it to their portfolio.<\/p>\n<p>And in the off-chance neither of these materialize, you can exercise your contract termination clause.<\/p>\n<p>So your &#8220;worst&#8221; case isn&#8217;t really that bad after all (that&#8217;s lesson #1).<\/p>\n<p>And lesson #2 is\u00a0to keep moving forward through open doors until they\u2019re permanently shut. I have found time and again that magical things happen when you do.<\/p>\n<p><em>What door did you walk through, and what happened? Or what door did you fail to walk through and why?<\/em><\/p>\n<p><strong>Let me hear from you! <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>You managed to get a killer multifamily deal under contract but don\u2019t have all the money raised. Don&#8217;t curl up into the fetal position; there&#8217;s a way out!<\/p>\n","protected":false},"author":1501,"featured_media":84864,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7357],"tags":[],"class_list":["post-77190","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-multifamily-real-estate-investing"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/77190","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1501"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=77190"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/77190\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/84864"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=77190"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=77190"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=77190"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}