Off Market Deal Question

28 Replies

Hey guys! I have been doing a tiny bit of driving for dollars and as I prep/goal set for 2018, I told myself that I am GOING TO find, and close, my first deal next year. I plan on really ramping up on driving for dollars to find some off market gems. I am also going to try my hand at direct mail marketing.

Long story kind of short, if I drive for dollars and send a letter out and someone agrees to sell me their home for pennies on the dollar, can they accept regular bank financing? For example, if I get a prequal letter from a bank saying that I am approved for a loan up to $500,000.00 USD, and I find a house valued at $325,000 and the owner agrees to sell it to me for $200,000, can I just use the bank's money and give it to the seller?

The reason I am so confused about this is I feel like when I hear stories about wholesalers, direct mailers, offer market deals, I ALWAYS hear about people "paying cash". I don't have $300,000 sitting around and I don't want to deal with a private lender so I wanted to know if conventional financing works for off market deals.

As always, I appreciate ALL comments ;-)

Originally posted by @Kevin Dickson :

Hey guys! I have been doing a tiny bit of driving for dollars and as I prep/goal set for 2018, I told myself that I am GOING TO find, and close, my first deal next year. I plan on really ramping up on driving for dollars to find some off market gems. I am also going to try my hand at direct mail marketing.

Long story kind of short, if I drive for dollars and send a letter out and someone agrees to sell me their home for pennies on the dollar, can they accept regular bank financing? For example, if I get a prequal letter from a bank saying that I am approved for a loan up to $500,000.00 USD, and I find a house valued at $325,000 and the owner agrees to sell it to me for $200,000, can I just use the bank's money and give it to the seller?

The reason I am so confused about this is I feel like when I hear stories about wholesalers, direct mailers, offer market deals, I ALWAYS hear about people "paying cash". I don't have $300,000 sitting around and I don't want to deal with a private lender so I wanted to know if conventional financing works for off market deals.

As always, I appreciate ALL comments ;-)

 Sure, why not? 

LTV restrictions will apply. So that $200k property will be viewed as a $200k property by the lender. So if it's a 75% LTV loan, that means you come in with $50k and borrow $150k.

After six months, appraised value can be used, such as in a cash out refinance. If you really are getting $325k homes for $200k, you can recycle the same down payment funds over and over. 

I had no idea. I just always hear people saying they bought cash. Or they got the cash from a hard money lender. I have literally never heard anybody said they used a bank for an off market deal.

Thanks for the answer though!

@Kevin Dickson , really, you've got "a prequal letter from a bank saying that I am approved for a loan up to $500,000.00 USD"? My guess is: No.

The only people I know who can get these letters are: People with high paying jobs and a long history with their bank; or Wholesalers who deal with Transactional (very short term) Lenders at very high Interest Rates and points (ie. Experienced Wholesalers who know where their end-Buyer is coming from, who'll pay out that Lender after first closing the property into their name); or, people who don't mind deceiving the Seller, by producing a fake pre-approval letter.

My guess is you're neither the first nor the second type, and you don't want to become the third type. So, unless you do have your own 25%+ deposit, mightn't it be easiest to suck it up, and: "deal with a private lender"? [But please, don't fall for "easy private money" ads, which are often scams aimed at getting upfront money out of you, first, then they disappear!] All the best...

Originally posted by @Brent Coombs :

@Kevin Dickson, really, you've got "a prequal letter from a bank saying that I am approved for a loan up to $500,000.00 USD"? My guess is: No.

The only people I know who can get these letters are: People with high paying jobs and a long history with their bank; or Wholesalers who deal with Transactional (very short term) Lenders at very high Interest Rates and points (ie. Experienced Wholesalers who know where their end-Buyer is coming from, who'll pay out that Lender after first closing the property into their name); or, people who don't mind deceiving the Seller, by producing a fake pre-approval letter.

My guess is you're neither the first nor the second type, and you don't want to become the third type. So, unless you do have your own 25%+ deposit, mightn't it be easiest to suck it up, and: "deal with a private lender"? [But please, don't fall for "easy private money" ads, which are often scams aimed at getting upfront money out of you, first, then they disappear!] All the best...

 I actually have gotten a prequal letter for more than $500K.

Originally posted by @Kevin Dickson :
Originally posted by @Brent Coombs:

@Kevin Dickson, really, you've got "a prequal letter from a bank saying that I am approved for a loan up to $500,000.00 USD"? My guess is: No.

The only people I know who can get these letters are: People with high paying jobs and a long history with their bank; or Wholesalers who deal with Transactional (very short term) Lenders at very high Interest Rates and points (ie. Experienced Wholesalers who know where their end-Buyer is coming from, who'll pay out that Lender after first closing the property into their name); or, people who don't mind deceiving the Seller, by producing a fake pre-approval letter.

My guess is you're neither the first nor the second type, and you don't want to become the third type. So, unless you do have your own 25%+ deposit, mightn't it be easiest to suck it up, and: "deal with a private lender"? [But please, don't fall for "easy private money" ads, which are often scams aimed at getting upfront money out of you, first, then they disappear!] All the best...

 I actually have gotten a prequal letter for more than $500K.

Good for you. I hope for your sake, that also means you do have the 25%+ deposit you'll need to get those "cash" deals done with a conventional loan. Cheers...

@Kevin Dickson

Sure you can be pre-qualed but the issue is that a lot of the selling points that works in most direct mail won't work for you, like closing quickly, being flexible, and paying cash quickly to get a discount. You'll need to find a more flexible seller and likely won't get as big of a discount, but if you do find a motivated person it'll still work.

If you want a direct mail game plan or checklist, let me know and I can send you one.

Good luck!

You’d still need the down payment plus closing costs which would be at least 40k plus closing costs (6-8k) for a 200k property and the process would take at least 45 days

@Kevin Dickson instead of driving for dollars, have you tried finding a source that can pull full detail data and try sending mailers?

In my market, I have closed on homes in as little as 3 weeks but most lenders are 4-6 weeks for conventional loans.  The big box, national companies may do things differently and end up taking longer.  Cash is king.  So if someone is distressed (distressed or not, cash is preferred) and they need to close with very few hiccups, they want cash.  No appraisal required with cash.  No financing that will fall through with cash.  People are more willing to talk to someone with cash and def more willing to give them a better deal for the lack of risks involved.  I always tell my clients, the more risk your offer has, the more money you should be prepared to spend to get the home.  We are in a very competitive market so this is a reality for us.  Not sure about your area.  As for why is noone marketing "they can use a conventional loan to buy properties"- 1. Bad marketing and doesn't grab anyones attention.  2. Its not that rare.  Probably a ton of people that could buy with a loan and have all the risks involved.  But someone with cash that wants to buy and eliminate those risk for the seller is much more rare and much more sexy to the seller.  Hope this helps.  

Originally posted by @Kevin Dickson :

Caleb Heimsoth Thanks for the response! Is the 45 days number typical? Are there any ways to speed it up?

Shouldn't you be asking the writer of your (guaranteed?) "more than $500,000" pre-qualification?

[I/we will be very interested to know of their answer to you - including their caveats]. Cheers...

Originally posted by @Brent Coombs :
Originally posted by @Kevin Dickson:

Caleb Heimsoth Thanks for the response! Is the 45 days number typical? Are there any ways to speed it up?

Shouldn't you be asking the writer of your (guaranteed?) "more than $500,000" pre-qualification?

[I/we will be very interested to know of their answer to you - including their caveats]. Cheers...

I got my prequal letter last April when I saw this MLS SUPER distressed house in a half acre lot in the suburbs that I wanted to tear down and rehab. The seller didn't like my 75% of ask offer so he delisted the home. That was my first and only offer. Since then I haven't really been actively looking and the prequal letter is only good for 90 days I think.

I am meeting with a bunch of lenders over the next few weeks to see who has the best rates and financial instruments that can help me with this project.

I REALLY want to 203k it but I don't know how feasible it is. The last lender said that he has done "more than his fair share" of 203K loans and he said that at least one wall needs to remain to qualify for the 203K loan. The lender also mentioned that getting contractors in this market can be kind of hard because so many people are rennovating homes. So I am trying to meet as many contractors and engineers as possible as well.

I also got in touch with an agent today that is working on a duplex build himself and he was talking to me briefly (I had a lot of back to back meetings today) about his process (ie. meeting with the city to get approval for his build plans, getting the permits, buying his sketches for the duplex, hiring an engineer to stamp the blueprints etc.)

I am determined to see this through and my girlfriend is slowly getting more interested as well so she is helping fan the flames. I will let you know how things go.

Originally posted by @Account Closed :

@Kevin Dickson instead of driving for dollars, have you tried finding a source that can pull full detail data and try sending mailers?

 I haven't tried that YET. I have been tinkering with the idea of getting a list from listsource but as I have been listening to direct mail BP podcasts, I am hearing that the response rate is kind of low. I also hear that these people are spending thousands of dollars a month.

Keep in mind I am VERY new to real estate investing so I don't know what I don't know. If this is your niche, I would LOVE to give you a call and hear about some of your experience doing this =)

Originally posted by @Kevin Dickson :
Originally posted by @Brent Coombs:
Originally posted by @Kevin Dickson:

Caleb Heimsoth Thanks for the response! Is the 45 days number typical? Are there any ways to speed it up?

Shouldn't you be asking the writer of your (guaranteed?) "more than $500,000" pre-qualification?

[I/we will be very interested to know of their answer to you - including their caveats]. Cheers...

I got my prequal letter last April when I saw this MLS SUPER distressed house in a half acre lot in the suburbs that I wanted to tear down and rehab. The seller didn't like my 75% of ask offer so he delisted the home. That was my first and only offer. Since then I haven't really been actively looking and the prequal letter is only good for 90 days I think.

I am meeting with a bunch of lenders over the next few weeks to see who has the best rates and financial instruments that can help me with this project.

I REALLY want to 203k it but I don't know how feasible it is. The last lender said that he has done "more than his fair share" of 203K loans and he said that at least one wall needs to remain to qualify for the 203K loan. The lender also mentioned that getting contractors in this market can be kind of hard because so many people are rennovating homes. So I am trying to meet as many contractors and engineers as possible as well.

I also got in touch with an agent today that is working on a duplex build himself and he was talking to me briefly (I had a lot of back to back meetings today) about his process (ie. meeting with the city to get approval for his build plans, getting the permits, buying his sketches for the duplex, hiring an engineer to stamp the blueprints etc.)

I am determined to see this through and my girlfriend is slowly getting more interested as well so she is helping fan the flames. I will let you know how things go.

Why am I getting the impression that you're only interested in complete re-builds? 

ie. Why don't you know how "feasible" the idea of an owner-occupier 203k Loan is? 

ie. Why is it a problem that "at least one wall needs to remain to qualify"? Cheers...

Originally posted by @Brent Coombs :
Originally posted by @Kevin Dickson:
Originally posted by @Brent Coombs:
Originally posted by @Kevin Dickson:

Caleb Heimsoth Thanks for the response! Is the 45 days number typical? Are there any ways to speed it up?

Shouldn't you be asking the writer of your (guaranteed?) "more than $500,000" pre-qualification?

[I/we will be very interested to know of their answer to you - including their caveats]. Cheers...

I got my prequal letter last April when I saw this MLS SUPER distressed house in a half acre lot in the suburbs that I wanted to tear down and rehab. The seller didn't like my 75% of ask offer so he delisted the home. That was my first and only offer. Since then I haven't really been actively looking and the prequal letter is only good for 90 days I think.

I am meeting with a bunch of lenders over the next few weeks to see who has the best rates and financial instruments that can help me with this project.

I REALLY want to 203k it but I don't know how feasible it is. The last lender said that he has done "more than his fair share" of 203K loans and he said that at least one wall needs to remain to qualify for the 203K loan. The lender also mentioned that getting contractors in this market can be kind of hard because so many people are rennovating homes. So I am trying to meet as many contractors and engineers as possible as well.

I also got in touch with an agent today that is working on a duplex build himself and he was talking to me briefly (I had a lot of back to back meetings today) about his process (ie. meeting with the city to get approval for his build plans, getting the permits, buying his sketches for the duplex, hiring an engineer to stamp the blueprints etc.)

I am determined to see this through and my girlfriend is slowly getting more interested as well so she is helping fan the flames. I will let you know how things go.

Why am I getting the impression that you're only interested in complete re-builds? 

ie. Why don't you know how "feasible" the idea of a (owner-occupier) 203k Loan is? 

ie. Why is it a problem that "at least one wall needs to remain to qualify"? Cheers...

I am interested in a complete rebuild because I am in the Portland Oregon market and the area that I am looking in has older homes that aren't really what my lady and I are looking for. We LOVE super modern homes and we really want to build a multifamily on it. The duplexes that are on the market that look like the style we want are WELL over $1M

This is $1.3M kind of in the area I am looking in: https://www.zillow.com/homedetails/2834-NE-Killing...

I don't know how feasible it is because I don't know if builders can tear down everything except for one wall and build a modern home. I also don't know because I have never done this before. I am however willing to ask questions and get answers to my questions.

Originally posted by @Kelly Kormos :

In my market, I have closed on homes in as little as 3 weeks but most lenders are 4-6 weeks for conventional loans.  The big box, national companies may do things differently and end up taking longer.  Cash is king.  So if someone is distressed (distressed or not, cash is preferred) and they need to close with very few hiccups, they want cash.  No appraisal required with cash.  No financing that will fall through with cash.  People are more willing to talk to someone with cash and def more willing to give them a better deal for the lack of risks involved.  I always tell my clients, the more risk your offer has, the more money you should be prepared to spend to get the home.  We are in a very competitive market so this is a reality for us.  Not sure about your area.  As for why is noone marketing "they can use a conventional loan to buy properties"- 1. Bad marketing and doesn't grab anyones attention.  2. Its not that rare.  Probably a ton of people that could buy with a loan and have all the risks involved.  But someone with cash that wants to buy and eliminate those risk for the seller is much more rare and much more sexy to the seller.  Hope this helps.  

 This helps tremendously! Thanks. I don't want to go the hard-money route on my first deal. But I am hoping that I luck up and find a seller that likes my story and can wait the 4-6 weeks.

Originally posted by @Kevin Dickson :

I am interested in a complete rebuild because I am in the Portland Oregon market and the area that I am looking in has older homes that aren't really what my lady and I are looking for. We LOVE super modern homes and we really want to build a multifamily on it. The duplexes that are on the market that look like the style we want are WELL over $1M

This is $1.3M kind of in the area I am looking in: https://www.zillow.com/homedetails/2834-NE-Killing...

I don't know how feasible it is because I don't know if builders can tear down everything except for one wall and build a modern home. I also don't know because I have never done this before. I am however willing to ask questions and get answers to my questions.

Yeah, well, you lost me at "older homes that aren't really what my lady and I are looking for".

Sorry, you can't receive proper investment advice, once you get emotionally involved! Me, out!

Originally posted by @Brent Coombs :
Originally posted by @Kevin Dickson:

I am interested in a complete rebuild because I am in the Portland Oregon market and the area that I am looking in has older homes that aren't really what my lady and I are looking for. We LOVE super modern homes and we really want to build a multifamily on it. The duplexes that are on the market that look like the style we want are WELL over $1M

This is $1.3M kind of in the area I am looking in: https://www.zillow.com/homedetails/2834-NE-Killing...

I don't know how feasible it is because I don't know if builders can tear down everything except for one wall and build a modern home. I also don't know because I have never done this before. I am however willing to ask questions and get answers to my questions.

Yeah, well, you lost me at "older homes that aren't really what my lady and I are looking for".

Sorry, you can't receive proper investment advice, once you get emotionally involved! Me, out!

 I don't think I am emotionally involved. I have a preference of a style of home that I want to live in and occupy for years LOL. I don't think there is anything unreasonable about that.

@Kevin Dickson n A 203k lender will in almost all probabilities not fund a loan that will be used to completely rebuild a house (less one remaining wall). Not to mention that if you want a modern house, you will want to start with a clean slate.

I’ve seen multiple posts that you’ve made and it really sounds like you have something very particular in mind and ultimately your end goal is to live in a nice, new, modern designed house. Is that correct?

This type of real estate acquisition is much more on the personal use side than it is the investment side. Yes, you want to have more than one unit, but so do many retail buyers out there, but the nice thing is that what you are looking for actually does exist in the marketplace. If you have your conventional financing lined up, you should really start looking for newly built properties on the market. $500k may be a little light if you want to go inner Portland, but Newberg is close to you and they have some great new stuff in that price range.

If you go this route not only will you not have to drive for dollars, waste money on direct mail (which all the owners are getting flooded with already in the area), not have to meet multiple architects, engineers, general contractors, and not have to oversee the project and wait another year for your Certificate of Occupancy to be issued, but your girlfriend will really appreciate a new house without the grind.

Based on your previous posts, I imagine your objection is simply that what you want in a property no one has built. To that, I would steer you towards a custom builder that would be more than happy to build the house you want knowing that they have a guaranteed buyer at the end. You may be spending a little bit more on the purchase price, but in the long run there is a high probability that due to your experience you will save yourself a ton of time, energy, money, and quite possibly a relationship. You get your modern duplex and everyone wins.

@Neal Collins I do have something particular in mind and last year when I initially brought this up, I was in a different financial and personal space.

This is 100% more on the personal side than the investment side. My girlfriend and I are currently renting and now that we know Portland a lot more, we realized that we want to be in the city and not in a suburb. We also want to be in a brand new home that we want to custom build. So we figured that if we are going to build, we might as well build more units and possibly lessen the financial burden.

I have been looking on the MLS for modern duplexes and all of the ones I have seen are well over $1M. I have gotten in contact with an agent that will also look for newly constructed duplexes. If we can find one we 100% will just buy turnkey.

If you know of a custom builder, I would love an introduction.

Hey Kevin I am on a similar path, building my own proprietary list of homes to market and eventually purchase & flip. 

The problem you appear to have is that your a little all over the place. Is your goal to spec build, get into a MFR property or purchase, rehab & flip for a profit? You have to narrow down specifically what your goal actually is. It seems you want to flip homes, which is a good strategy. However you have to understand most investors (i.e. flippers, BRRRR) don't use bank financing because they want to flip the home or re-finance from a hard money loan, very active financial plays.

If you are going to buy a truly distressed home, banks are not going to lend you money on it, because it probably is not in livable condition (i.e. mold, damaged roof).  Additionally there are acceleration clauses to prevent & discourage the sale of the home.    

 

Originally posted by @Jay P. :

Hey Kevin I am on a similar path, building my own proprietary list of homes to market and eventually purchase & flip. 

The problem you appear to have is that your a little all over the place. Is your goal to spec build, get into a MFR property or purchase, rehab & flip for a profit? You have to narrow down specifically what your goal actually is. It seems you want to flip homes, which is a good strategy. However you have to understand most investors (i.e. flippers, BRRRR) don't use bank financing because they want to flip the home or re-finance from a hard money loan, very active financial plays.

If you are going to buy a truly distressed home, banks are not going to lend you money on it, because it probably is not in livable condition (i.e. mold, damaged roof).  Additionally there are acceleration clauses to prevent & discourage the sale of the home.    

 

 I apologize if I seem like I am all over the place. I actually have a simple and narrow focus. I want to build a very modern multi-family (duplex or triplex) preferably in Portland (would consider Beaverton - which is a suburb of Portland in the city I work). The reason I want to go higher end on this is becuase my girlfriend and I will live in it for at least 3-5 years. So this isn't really an investment property. I want to build a primary residence that can perhaps turn into an investment in a few years if I decide to move out of Oregon.

How I want to GET the property to build this multi-family is driving for dollars/direct mail to find a lot or already existing duplext that needs to be remodeled.

All in all, I think I have a pretty clear vision. I asked the initial question in this thread because I hear on a lot of podcasts that people get these off market deals and I hear about them paying cash and wanted to know if you miraculously knocked on someone's door and told them you wanted to buy their house could you do so with a traditional loan from BoA/Chase etc.

@Kevin Dickson in

I would recommend calling Evergreen Homes or Oregon Homeworks and talk to them about a custom duplex build.

Also, I would highly suggest you reconsider getting conventional financing through Chase or BoA. These banks are great at online banking, credit cards, etc, but a local bank, credit union or mortgage broker will be much more nimble and able to fund you without any hiccups.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.