Good day all,
My wife and I attended the Scott Yancey workshop this past weekend and no we did not pay the ridiculous amount of money for the mentoring. We attended the workshop for access to their "Proof of Funds" letter only to find out on Sunday that it was only for Wholesaling and you have to have a buyer prior to the deal getting funded.
I have a few questions.
1. Is this a standard practice for lenders to require you to have a buyer already in place?
2. Is there an easier way to use hard money lenders?
Thanks in advance.
1. For standard or conventional lenders I’d say probably. Most will require a signed contract from what I’ve seen.
Any knowledgable seller or agent will see it for the worthless piece of paper that it is.
And to be clear: A POF is proof(like a bank statement) that You The Buyer actually have the cash In Your Name somewhere. Anything Else is a loan preapproval, some legit, some worthless like the one mentioned above.
Welcome to BP and congrats on your 1st post! Good thing you found this website and didn't waste money on those guru sales tactics.
What are you wanting to do in real estate? Flipping, wholesaling, rentals, etc?
You typically use a lender when you yourself are the borrower/buyer. Wholesaling is one of the more unique instances where you can use a hard money lender, but in most cases you don't have to since you're selling a contract. Only in markets where wholesaling is considered "illegal" that you would need hard money to temporarily buy a house and then sell it immediately to an end buyer on the same day.
Hard money lenders can be used for almost any type of investment involving real estate. You use them if you need to close quickly, or if you can't get qualified with a traditional bank.
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You say it’s worthless but how come countless people use them to secure property? There has to be SOME value, no?
Can you explain your analogy? What did you mean by "you don't know where it's been" in regards to hard money lenders?
I'd actually argue that what your proposing isn't easier; creative financing isn't a newbie tactic. And it really only works if you are in direct contact with the seller, which eliminates the MLS as one of your acquisition channels. However, it is definitely useful to have in your toolbelt, and if the OP was intending to do wholesale / direct mailing (which I'm not sure what the goal is yet), it's worth it to learn.
I invest in flips and rentals both locally and out-of-state, and I've always used hard money. I see hard money lenders as my partners. They are another set of eyes on the deal. They check out the area, they confirm my ARV, they vet my contractors, they ensure that everything looks good with title, that I have the proper insurance in place, etc. I have had hard money lenders make suggestions to the kind of rehab I should do: "I think you might be over-rehabbing in your area; I don't think you should do hardwood there." And if my hard money lender won't lend on the deal, I'd probably reconsider whether it is a deal.
@David Weintraub I think the issue here is some people don't understand the difference between proof funds and letter of credit. There many people, even real estate investors and realtors, you can show a letter of credit and they will not have any idea of the difference that this is not a true proof funds. Hard money lenders hand those things out all the time - means relatively nothing.
A 100% proof of funds, at its core, is a bank statement that you are in control of.
That being said, you don't have to be shady or deceptive about it. If they ask what is your plan to secure the cash, tell them you work with a lender that supplies cash on a short term basis to close deals. That is what I'm using as proof of funds.
Half the time the "shadiness" in real estate industry is simply not being upfront. For example, there is nothing inherently wrong with wholesaling. If you are upfront about how you plan to work the deal, home sellers will surprise you that they are okay with the process as long as they get the agreed upon funding and you aren't wasting their time/playing games. If you walk around strutting you got $10,000,000 in the bank and you in fact have no money and need to secure that financing elsewhere, there is where your problem is created.
Again, honesty goes a long way in these scenarios if you can actually perform.
I was just on the phone with a realtor that does a lot of probate listings.
She had a wholesaler come in as the high bid on a hot listing. Wholesaler assigned the contract, to a buyer. 2 days before closing, it turned out the buyer didn't have funds either.
They were pissed. Complete waste of everyone's time.
I think wholesaling is great. They're valuable market participants. However, I would never let one of my listings accept an offer from one. Just too much risk.
@Lucas Machado I don't disagree with that, but to say it's "worthless" is an overstatement, since nearly every one I've dealt with has requested one, outside the Sheriff process, and it often results in them closing. Obviously, cash is king.
But yet, honesty is the key. My assumption is going to be that you're honest, until you're not. And once you're not, I assume you never are.
@David Weintraub @Wayne Brooks I think what Wayne is alluding to is those that basically will sell POF letters for a little money and the company behind it is in the business of selling POFs they make the condition of the POF so tough rarely can anyone fund..
Certainly a POF from a legit HML like Lima lendingone Lending home out our way Conventus Iron bridge to name just a few is fine... however having been a HML and having given many of these out.. I am the first to admit we don't always totally vette the deal up front and there is a good chance we won't fund when all the circumstances come to play.. Although I did not charge for mine.. its common at Guru events to have a table set up to buy pre approval letters its a revenue source for the back end guru facilitation company. Just like the mentoring is or selling asset protection to those who have almost no assets LOL.. that one always got me..
Originally posted by @Jay Hinrichs :
@David Weintraub @Wayne Brooks . I am the first to admit we don't always totally vette the deal up front and there is a good chance we won't fund when all the circumstances come to play.. Although I did not charge for mine.. its common at Guru events to have a table set up to buy pre approval letters its a revenue source for the back end guru facilitation company. Just like the mentoring is or selling asset protection to those who have almost no assets LOL.. that one always got me..
Understood. I think it would be wrong to offer one without vetting the deal on a cursory level, at the very least. And more wrong to actually charge someone for one. But hey, everyone has their thing.
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