How to get around EMD

Question

My husband & I are looking into buying an investment property to wholesale.(Our first deal.)  The house is a short sale listed at $274,500 but valued at $393,900. In California where we live EMD is usually 3% (on average), but being new investors it's going to be hard to fork up that much money out of pocket. Here is my other plan:

We have a private lender who will 100% finance our deal. Thus we make an EMD of $100 and purchase at $280K. (And maybe have seller pay half of closing costs?)

Any experienced investors think this could work? And if not, what other way could we go about it? Any advice would be appreciated.

Wayne Brooks · Answer

The bigger challenge in a short sale is you need to show the ability to purchase.....either cash in Your name, or a legit preapproval from a lender.  Also, the listing price is no indication of what price the bank may or may not accept.

Benjamin Krebs · Answer

Hey Would love to connect if you're still wholesaling!

Jennifer Kinzle · Answer

Hi Esta,As a short sale agent, I can't see the deal being accepted the way you describe it unless it was just to help the listing agent establish a pre-approved price point.  Listing agents on short sales run a ton of paperwork on these deals and they prefer to have buyers intending on closing, not wholesaling, and tying up a property when it could have been active on the market for owner-occupants. On the other hand, if you have a strong list of 1,000 buyers ready to go who aim for that price point, a short sale does offer the luxury of extra time to find a buyer on it.   It might be simpler to find a great auction deal or a private, unlisted property for sale instead to wholesale.

Wayne Brooks · Answer

Transactional lenders lend money for less than one day, usually a few hours or less, and Only when the end buyer's money is already in escrow.  They don't lend "against the property", but against money already sitting thee.

Devon Garbus · Answer

@wayne brooks we both know that those aren't hard to find ;)

Will the transactional lender not give you EMD money? Even if it's X at owner acceptance and adding Y at bank acceptance itll save you on the interest.

Why cant you close on the whole transaction with hard money?

Wayne Brooks · Answer

As the listing agent, your offer would probably hit the trash right away with a "private lender".  If instead I called him and suspected it was transactional funding he was providing, your offer would hit the trash and so would all future offers, before reviewing.  Transactional funding is Not purchase financing, for you.  It's totally dependent upon you finding another willing and able buyer, and we don't tie up properties, most assuredly not short sales, to wholesalers.  You'll need an unaware listing agent to get anywhere.

Steve Vaughan · Answer

There is a huge spread between $9k and $100.  Nothing in the middle?  A $400k offer with a $100 EMD won't cut it with a bank.  I don't think I'd do it either.  They want to know you are serious.  What about 1%?  That's fairly common.  Will save you thousands if you get it for asking instead.  Think past next week!

Eseta Matasau · Answer

@George P. I don't have 9k. Also my deal is financed by a transactional lender

@Devon Garbus Yes my lender is a transactional lender, so I do have to double close and sell to Buyer "C". And that was what I was thinking. If I'm going to offer a low EMD, we would offer at $280K (asking price is $274K).

Devon Garbus · Answer

Since this is a short sale things are a bit different. If this was a normal sale I'd tell you no owner/LA would let you touch it with no EMD.

Check with your local agents/laws/contracts etc but you don't need to put escrow money in until the bank approves it. Which in a non pre approved short sale case can be 2-12 months. I'd also throw in a really small EMD, occasionally banks overlook that when approving short sales and just look at the bottom line.

Also- if you are pre approved for 100% loan offering $500 in EMD is fine. Although you probably need to offer over asking or something to make the offer look good.

So you can get away with no money in escrow for a long time. Try to find a transactional lender. Such a small amount is hard to find for, but it can happen. You can also try talking to friends/family to invest in the business, give you 9k now for EMD and get back 12 later should be appealing after you explain the business and how this isn't a scam.

George P. · Answer

so u want to buy a 300k house but don't have 9k to pay for emd? or u have but don't don't want to spend it?

How to get around EMD

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