Making an offer with no hard financing plans
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Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9yOriginally posted by @John Ford:
What if my financing plans are "take out a HELOC which could take 60 days to close and I very well could ultimately be denied for, blowing up the deal." Is it still worth it to submit an offer?
Well, it's America, so you are free to write the offer. And they are free to throw it in the trash can.
¯\_(ツ)_/¯
John, and this is for the lurkers too: Whoever you are reading this, that means some part of you is interested in real estate. If you have the equity, you almost have what most people that want into REI do not have -- ready access liquid to capital.
Go apply for and open that HELOC now. Keep the balance at $0.00. You will pay some nominal fee, like $75/year, to keep the HELOC open with zero balance. $75/year is nothing, and what it gets you is ready to write an offer the second that killer deal you've been waiting for this whole time crosses your desk. Lurkers, go open that HELOC now. John, go open that HELOC so you don't miss out on the next one.
For people years and years away that are just reading this who like the town they live in and will probably be there for another 5 to 10 years or more, go do the NYT rent vs own calculator, and buy a house for you and your family. 5% down gets you in the door of homeownership and off the rent treadmill, and if you get fortunate with appreciation, there's your REI down payment. Dumb luck with appreciation (sometimes it's more research than dumb luck) paired with a HELOC, believe it or not, is one of the most common ways people get started. HELOC funds can make it a cash purchase, or those HELOC funds can be a big fat 25% down payment paired with a traditional mortgage for 75%. What's 75%+25%? It's 100%. Look, 100% financing. Boom, there's your golden ticket, 100% financing on an investment property. Done. Stop messing around and let this be your call to action. Renters are not eligible for dumb luck (or research) HELOCs.
28 Replies
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @John Ford:
What if my financing plans are "take out a HELOC which could take 60 days to close and I very well could ultimately be denied for, blowing up the deal." Is it still worth it to submit an offer?
Well, it's America, so you are free to write the offer. And they are free to throw it in the trash can.
¯\_(ツ)_/¯
John, and this is for the lurkers too: Whoever you are reading this, that means some part of you is interested in real estate. If you have the equity, you almost have what most people that want into REI do not have -- ready access liquid to capital.
Go apply for and open that HELOC now. Keep the balance at $0.00. You will pay some nominal fee, like $75/year, to keep the HELOC open with zero balance. $75/year is nothing, and what it gets you is ready to write an offer the second that killer deal you've been waiting for this whole time crosses your desk. Lurkers, go open that HELOC now. John, go open that HELOC so you don't miss out on the next one.
For people years and years away that are just reading this who like the town they live in and will probably be there for another 5 to 10 years or more, go do the NYT rent vs own calculator, and buy a house for you and your family. 5% down gets you in the door of homeownership and off the rent treadmill, and if you get fortunate with appreciation, there's your REI down payment. Dumb luck with appreciation (sometimes it's more research than dumb luck) paired with a HELOC, believe it or not, is one of the most common ways people get started. HELOC funds can make it a cash purchase, or those HELOC funds can be a big fat 25% down payment paired with a traditional mortgage for 75%. What's 75%+25%? It's 100%. Look, 100% financing. Boom, there's your golden ticket, 100% financing on an investment property. Done. Stop messing around and let this be your call to action. Renters are not eligible for dumb luck (or research) HELOCs.
- Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
@Account Closed said, they'd throw it in the trash.
I'm definitely calling the bank about the HELOC tomorrow. I've been putting it off while I focus on a lot of other things with my rental house, day-job career, etc... but I need to get that ball rolling. I definitely wish I'd done it 2 months ago now. :/ - Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
If you write an offer knowing you can not likely close, thats fraud. It is something I see several real estate commissions issue large fines for, that extend to both licensees and the general public.
District Invest Group546 Reviews - Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes9y
Well, your agent isn't very sharp, or assertive, or they would have had you show proof of financing already.....but they will surely require it before submitting an actual offer, I'd hope. Certainly any seller's agent will.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @Russell Brazil:
If you write an offer knowing you can not likely close, thats fraud. It is something I see several real estate commissions issue large fines for, that extend to both licensees and the general public.
Are you talking about dummied up preapproval letters (yup have had that happen to me - "Hi Chris this is Sally with Keller Williams, and I've got a preapproval letter here from you for Jane Doe" - "who the heck is Jane Doe?" - [awkward silence...]), or just submitting an offer while remaining silent on the question of financing?
- Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
@Russell Brazil, sorry, I think there's a very good chance I'd be able to close. Otherwise I wouldn't waste my time. But things aren't as cut & dried as having a pre-approval letter for a conventional 30yr mortgage, either. But even then, there's a chance the financing could fall through for any number of reasons. And one thing the golden-child investors say often on the BP podcast is things long the lines of "make the offer, then worry about how you're going to close", which I'd never go that loosey-goosey. But I am wondering how far along that spectrum of uncertainty is considered acceptable. It seems to me as long as I'm upfront with the seller in my contract, I should be fine, legally. But again, I only want to submit an offer if I think it has some chance of being accepted.
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes9y
Originally posted by @Chris Mason:
Originally posted by @Russell Brazil:
If you write an offer knowing you can not likely close, thats fraud. It is something I see several real estate commissions issue large fines for, that extend to both licensees and the general public.
Are you talking about dummied up preapproval letters (yup have had that happen to me - "Hi Chris this is Sally with Keller Williams, and I've got a preapproval letter here from you for Jane Doe" - "who the heck is Jane Doe?" - [awkward silence...]), or just submitting an offer while remaining silent on the question of financing?
The situation I refer to typically happens to two different groups. The first are real estate agents who offer a guarantee to buy their clients house if they can not sell it. If they do not have the funds or the ability to actually purchase the property this is fraud. The next type of person this happens to is wholesalers who tie up a property with a contract but dont have the ability to close on it.
Though I dont know any instance of this extending to someone making a generic offer...the conversation between agents often takes place all the time. Can your buyer close....I dont know....Well if you dont know you need to find out or we may have a fraud case if you tie up my property and cant close. It usually doesnt go anywhere because the offer is never accepted, but the same underlying principal from the cases where it doe happen applies. If you make an offer knowing you likely cant close, it is fraud.
Doesnt sound like thats the case with the op after some clarification though.
District Invest Group546 Reviews - Rental Property Investor · Grand Haven, MI · Member since 2015 · 150 posts · 127 votes9y
Yes! You absolutely can write an offer on a property - but make sure it's contingent on approval of HELOC. Your agent should be able to write a standard PA with a note in 'other provisions' or with an addendum that states that your cash purchase is contingent on HELOC approval.
Talk to your agent. He/she will be able to give you insight on the local market practice. Be upfront with all parties involved and you should be able to move forward with no issues.
- Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
Originally posted by @Wayne Brooks:
Well, your agent isn't very sharp, or assertive, or they would have had you show proof of financing already.....but they will surely require it before submitting an actual offer, I'd hope. Certainly any seller's agent will.
Heh, I think they're pretty bright. They worked with me to purchase a different property so we already have a good working relationship. We have not signed paperwork for my current search because I told them I'm going to begin looking in earnest in Q1 of the new year, which is also when I'd planned to have the HELOC stuff sorted, etc... But they still send me market info and info on auctions and such. Then this potential deal fell out of the sky so I wanted to see if it's worth trying to accelerate my plans to see if I can pull this thing together. So if the consensus had been "hell yeah, make an offer then figure it out!" I'd call them up and say, "hey, what can we do here?!" But that doesn't seem to be the case. Oh well. Back to Plan-A.
As with most posts, there's actually a ton of ancillary info that I chose not to put into the original post because I wanted to keep things relevant to the specific topic I'm not clear on at the moment. But I'm pretty clear on my agent's capabilities, thanks. - Rosedale, NY · Member since 2016 · 120 posts · 24 votes9y@ Chris Mason hello, what is a HELOC account and where can I open one? How does it works? Thanks
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @Alexcia White:
@ Chris Mason hello, what is a HELOC account and where can I open one? How does it works? Thanks
Hi Alexcia,
A HELOC is essentially a credit card secured by your house, with a credit limit that can be in the hundreds of thousands of dollars (it depends on how much equity you have), and typically an interest rate lower than any normal credit card is willing to offer (because it's secured by your house as a second mortgage -- this isn't a credit card you'd ever want to walk away from!). Like any other credit card, the minimum monthly bill when the balance is $0, is typically $0.
Even for folks not involved in REI, like restaurant owners for example, it's nice to be able to make several hundred thousand dollars appear without question and with the click of a mouse. Let's say a restaurant burns down and it'll take six months for the insurance money to come through. Great *click click* on the computer, there's $150k in my checking account (dependent on equity), now I can repair the fire damage, fix my restaurant up and get it back open ASAP, and I'll pay the HELOC off when the insurance money finally comes through (you know, instead of that building sitting vacant for six months before I can even start the repairs).
Any mortgage lender licensed in your state should be able to help you, or point you in the right direction.
- Rosedale, NY · Member since 2016 · 120 posts · 24 votes9yAwesome! Thank you can get that credit if you have a mortgage on your house?
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @Alexcia White:
Awesome! Thank you can get that credit if you have a mortgage on your house?
Yup. Most HELOCs are behind a 30 year fixed 1st position mortgage.
- Rosedale, NY · Member since 2016 · 120 posts · 24 votes9yGreat info to know.. thanks a lot Chris.. Are you a hard or private lender?
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes9y
Originally posted by @Alexcia White:
Great info to know.. thanks a lot Chris.. Are you a hard or private lender?
I do fannie/freddie/fha/va and a few portfolio things.
But, relevant to you, I'm not licensed to lend on properties in New York.
- Rosedale, NY · Member since 2016 · 120 posts · 24 votes9yOh ok.. Hopefully I will expand in California market in the future.. Thanks
- Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes9y
@John Ford
Just go and get yourself pre approved so that you don't lose your EMD or waste the seller and listing agents time.
It's a simple process and if you need additional information PM me.
- Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes9y
I upvoted both of @Russell Brazil's comments, as a WI licensed broker myself, even though I've used my license mostly for my own investing, you apparently have great faith in your agent/broker's abilities (here in WI we have two levels, agents and brokers, brokers require a bit more training BUT that's not to say there aren't many agents out there who know the biz inside and out and may know more than many brokers even do and some licensees just don't know much at all-so then its a question of whether or not they go to their managing broker for advice or just go rogue and shoot from the hip-which is NOT a smart strategy!)
I'm assuming there must be some relevant details missing and these are short posts of course, so that's understandable but sure leaves me wondering what your agent is thinking by even suggesting that would be a worthwhile offer to submit, both for what Russell pointed out, you could get sued for damages if the seller is led to believe anything more than what you said, that "hey I might/should have this HELOC $$ but it may just fall apart too" and if that's all the offer says, I can't see many sane sellers (and their agents) doing anything but trashing that offer ASAP.
The only chance maybe is if its been on the mkt for 2 years, NO ONE wants to touch it and they'd probably listen to someone who's listing their Powerball tickets as their proof of funds! "Here, see $345 MILLION RIGHT HERE!! Or $180M if I take the lump sum, but these are damn good #s I've been playing for years, this is the week!!"You said its a hot deal though, so why in the world would they even bother looking twice at anything but solid offers?
Off the top of my head, the best offers rundown might go like this:
#1 in line being CASH (with SOLID proof of funds, i.e. letter from bank exec saying "yes he's good for it!" being the best since they can call to verify, as it is not hard to bogus up a Photoshopped "$2 mil in my checking account" statement when its actually $2.00, or if real balance, you COULD withdraw that cash tomorrow, but when a bank exec vouches for cash buyer, that's GOLDEN!) NO contingencies and FAST close (usually takes at least a week around here to get title work done even for rush jobs, but title co's like to be sure about things!) so that's a dream offer assuming price is good, then it goes down from there.
Mortgage involved? Now closing just went from maybe 2 weeks or less to prob 6 to 8 weeks, but holding out for a cash sale w/quickie close is usually unrealistic. NICE when it happens though!
Home inspection? Oh great, we get to spin the "home inspector roulette wheel" some inspectors are GREAT, some others, well not so much and can jeopardize a sale for reasons that are dubious at best!
If you can know enough about inspecting a property yourself, removing the inspection contingency can be a big plus and why REO sales usually say "NO INSPECTION CONTINGENCIES"!
Besides that stuff on making one offer look 10x better than another that may even be offering more $$, I agree with Russell's concerns about the agent willing to write these offers that would say basically "I SHOULD be able to pay, but don't totally count on it, might easily blow up on us!" because we've got to follow some pretty tight guidelines for submitting offers and besides his very valid legal and liability concerns, also the reputation factor. Even in a big metro area there are only that many agents out there and they nearly all work for a limited # of firms, I can't see that offer making any agent look too professional, either.
Just looking at the terms often set for REO sales, assuming they aren't DESPERATE, tells a lot about what makes up a great looking offer to a smart seller and smart listing agent/broker! - Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
@Robert Taylor I have not brought the property up with my agent. This is a house I found on my own and was asking here whether I should even bother taking it to my agent to possibly write an offer or let this one go and wait until I get further along with the financing. That's in the first post.
And it's a hot deal for me but I have no idea whether anyone else thinks it's a hot deal. It might go under contract tomorrow or sit for months like the house right next to it, which has been sitting for 212 days and just dropped the price $10k. I don't think so, but I don't know.
@Shaun Weekes I didn't realize banks did pre-approval letters for Lines of Credit, but I'll ask. That would certainly simplify things. Thanks! - Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes9y
OK, sorry for the misunderstanding, how about seeing if your agent says he/she WOULD write that offer and if they agree, kick them to the curb! Just a little humor there but one thing too is that since the subject came up about banks and writing pre-approval letters, etc one goal to have (and I'm not certain here and don't have time now to read the posts again, but it sounds like you don't have the HELOC yet, BUT you at least think you've got a fair shot at getting one-i.e. no awful credit score, no bad customer rating at the bank(s) you bank with, etc) it is GREAT if you can build a relationship with the bank and often the smaller banks (like a regional or local to your metro area sized bank or smaller size bank) are better at this vs the MEGA BANKS, but sometimes if you find the right people at the MEGA BANK they can play ball too, I'd suggest a smaller bank though, if you can build a relationship with them and really often with one or just a few key people there, that relationship over time can pay dividends far beyond just the rigid "rules for lending and biz loans" might lead many to think.
Especially in the regional and smaller banks, they'll usually have a loan committee that meets to go over any somewhat substantial biz loan and maybe in a few years or 5, 10 years-whatever time frame you've learned the ropes and pushed ahead and now have this ball rolling and are really ready to make the jump to something not just the next step up, but maybe several steps up, having someone or a few people on that loan committee or who have the ear of the committee saying "Hey this John Ford's a smart, hard working, organized guy who just always makes things work, he deserves a little extra look here for this next loan, I think he's a risk worth taking, solid guy!" that might be the difference down the road for you. No, "shmoozing" loan officers at banks can't get a big loan with a 428 FICO and Chexsystem after you, etc but it can put you over the top OR maybe get some friendly terms to re-work an existing loan if you hit a rough patch which nearly everyone does at one time or another, where the person with no relationship and personal trust built up may just get their loan yanked in the same situation. Just some long term ideas. - Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
@Robert Taylor very good tips, thanks! I currently do most of my banking with Navy Federal, which has been great as a personal bank. Their lending tightness seems to ebb and flow, presumably with their lending needs, reserves, etc... They also have some real estate investor-focused mortgages and lines of credit which I'll be seeing about. And I know they do business banking if I wanted to move up to commercial multi-family in the future. But I don't know how good/strict they are at the larger stuff. I might look into establishing a relationship with a smaller local bank. I actually have one in mind.
My real ace in the hole for later on is the main investor in the company I work for now. In addition to software startups, he does a lot of commercial real estate deals (multi-family here, building townhouses there, warehouses over there...) the guy's all over the place. We have a pretty good relationship and I'm about to help make him a ton of money with this software startup. He loves mentoring people and helping "his people" move up. So if I ever get to the commercial level, I definitely plan to try and tap him a little bit for some connections if not outright partnership.
- 9yGreg JeanfreauPro MemberReal Estate Agent · New Orleans, LA · Member since 2015 · 145 posts · 127 votes
If you decide to proceed now, you should go to the lender that you plan on opening the HELOC with and get them to run your credit and review what they offer for Loan To Value (Most will offer a 70%-75% LTV on a HELOC for you primary residence). You should talk to your agent about the fair market value of your current house to see how much equity you realistically have. For instance, if you own your house out right and it's worth $200k, then Navy Fed or whoever you use should be able to open a $140k-$150k HELOC that you can use as "cash" once you have closed on the HELOC. So if this house is for sale for $100k, then you can purchase it and still have some left over to do repairs if it needs it. So in that example, you should (may) be able to get the person at the bank to write a letter stating that you are pre-approved for a HELOC, but only for the amount of the purchase for the new house. Once you have this in hand, it would not hurt to share the facts of your home with the seller of the new property such as address, square footage, some pictures, and some comps showing that you have equity to work with. Be open with them and do your due diligence and you may be able to pick it up. And, if it is the screaming deal that you think it is, you can do a cash out refinance on it with a private lender / local bank almost immediately or with a Fannie Mae backed loan after 6 months. You should be able to pull most if not all of your cash out, pay down the HELOC to 0 and repeat. But even if you do not get this house, I hope that you will proceed with opening the HELOC to pursue future deals because once it is open, it will remain open for a set time. Mine is a 10 year term and they will extend at the end if you want. I personally have bought numerous houses this way with my HELOC and make cash offers with it. I then make some repairs, pull all my cash out and repeat. And I have gotten some pretty great deals from it. Also, if you work with wholesalers to purchase properties, you will have to have cash to close typically within 30 days and wholesale deals are some of the best these days. Good luck!
- Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes9y
Not having your financing lined up before making an offer on a property is a waste of everyone's time, including yours.
- Rental Property Investor · Atlanta, GA · Member since 2016 · 85 posts · 49 votes9y
Thanks @Greg Jeanfreau. Yes, that is exactly my overall plan: purchase with LOC money then refi later to pull cash out and pay down/off the LOC. I'm hoping to qualify for an interest-only line of credit, as well, which will make cash-flowing properties in the interim before refinancing into fully amortized products even easier. My original plan was based on getting that ball rolling early next year.
I'm going to let this one go and keep going with my original time-table. It's just exactly the type of property I'm planning to buy, with the right numbers, so I was just checking to see if it was worth trying to fast-track some parts of my plan and hope the rest of the train catches up. But it sounds like the safest bet is to get the money in order first.
I do think overall I disagree with the "have everything set in stone before making an offer" approach, though, since it seems that's not strictly necessary. But I do think I'll save "winging it" until I have more than one option to choose from, like having 25-30% available for a down payment in addition to reserves for my other properties, just in case I need to fall back on conventional financing or even a hard money lender in order to close or something.
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