I feel shady getting properties under contract without funding.

Member since 2018 · 17 posts · 9 votes

I have been trying to get my head around the chicken and the egg game. I want to get a property under contract but I'm just starting out and I'm not 100% curtain i will be able to secure funding. Is it shady or immoral to make offers knowing there is a 50% chance or more that i will have to back out?

How can i make offers without losing out on deposits if i am forced to back out? Or should i secure my funding before making any offers?

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Alexander FelicePro Member

Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes

Well if you agree to buy a house and then you don't, because you never actually had the recourses to purchase it, and are hoping you can find someone else to buy it, AND you know this is a high possibility when you sign the contract:

Then yeah, your feeling of 'shady' or 'immoral' is warranted and correct.

Get your capital straightened out

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
Get pre-approved with a lender. You'll usually need a pre-approval letter to write offers. You would include a financing contingency in your offer. That's you're escape hatch if financing falls through. But you need to go through the pre-approval process up front.
11 Reply
Trevor Muska
OP
Member since 2018 · 17 posts · 9 votes
8y
Im investing using partners and creative financing. It takes time to organize the financing on each property. I can't get pre-approved since I'm not using traditional financing.
0 Reply
Tom S.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
8y
@Trevor Muska You should still get a pre-approval letter from a lender, you're not obligated to use that specific lender. Rocket mortgage is advertising a pre-approval letter in about 10 min. Get the letter to go along with your offers, and use partners / creative financing if you chose.
The financing contingency is standard in most offers.
1 Reply
Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
I think what he's saying is that he cannot qualify with a lender in order to get pre-approved.
2 Reply
Alexander FelicePro Member
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y
Well if you agree to buy a house and then you don't, because you never actually had the recourses to purchase it, and are hoping you can find someone else to buy it, AND you know this is a high possibility when you sign the contract:
Then yeah, your feeling of 'shady' or 'immoral' is warranted and correct.
Get your capital straightened out
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Trevor Muska
OP
Member since 2018 · 17 posts · 9 votes
8y
I wouldn't make an offer without having confidence in my ability to secure financing. However when I approach a potential investor they are going to ask to see the "deal." If I haven't made an offer then there isn't really a deal to look at.
I dont see how getting a property under contract while you secure your financing is any different then what a wholesaler does.
Its the cat and mouse game that applies to starting any business or career. Need a deal to get investor and need investors to get a deal.
I can get qualified using a traditional loan or maybe even an FHA but i would prefer not to. Would the smart play just be to get qualified and use the traditional loan as a backup if I am unable to secure an investor?
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John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
8y
If you could get FHA, not sure why you wouldn't go that route. As stated, some kind of "proof of finances" is typically required for a property to go under contract. Even cash buyers have to "show the cash" in essence to get a property under contract.
1 Reply
Jason D.
Rental Property Investor · St. Petersburg, FL · Member since 2017 · 3k+ posts · 4k+ votes
8y
Unless you are paying cash, no offer will ever have a 100% chance of financing. You have to have a purchase contract before you can go through the process to get a loan, that how it works even if you're buying a house for yourself to live in.
2 Reply
Trevor Muska
OP
Member since 2018 · 17 posts · 9 votes
8y
Im worried about the FHA loan because of the owner occupancy requirement. I dont know if i can commit to living there for a year.
I think you guys helped me clear this up a bit. I think I need to reverse my thinking. Instead of getting a deal pending finance I need to focus on getting the financing pending the deal.
Is that correct?
2 Reply
Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
To get an offer even considered you need to have financing sorted out. If you write the offer as "cash" you'll need a bank statement showing you have the cash. If you write it as financed you'll need a preapproval letter. With neither your offers will just go in the trash. A savvy agent won't even write an offer without one or the other.
7 Reply
Joe SplitrockPro Member
Moderator
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
8y
@Trevor Muska you should have some level of pre-approval when making offers. Of course the lender will only give final approval when there is a deal in front of them. You write the offer subject to financing getting approved, but there is a good faith belief the financing will be approved. Writing offers when you believe you can't get financing is dishonest and could even be fraudulent in some cases. By fraud I mean, if you were writing a contract without the intent of following through. Fraud is deliberate deception. But in your case it sounds like a good faith effort to get financing, so I don't see an issue.
As far as wholesalers, many write cash offers with no funding lined up. Then they back out of the contract even though they represented themselves as cash buyers. This is one of the many things that gives that profession a shady reputation.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
you got it.. the day and age of get a deal and the money will folllow is basically over and done with in this hot market.
sellers unless they are totally unsophisticated and that is the case in a lot of areas.. will require POF and financing approvals.
there is no question that those without money who tie up property on the guise of flipping it are just denying the morality of misleading a seller and in a lot of instance cause real harm.
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7 Reply
Trevor Muska
OP
Member since 2018 · 17 posts · 9 votes
8y
Thank you guys. I should be clear by saying I have not made any offers yet. I just listen to all these Podcasts and books that stress "getting them under contract." Its kind of misleading advice if you ask me.
4 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Trevor Muska:
Thank you guys. I should be clear by saying I have not made any offers yet.
I just listen to all these Podcasts and books that stress "getting them under contract."
Its kind of misleading advice if you ask me.
remember who the wholesaling gurus are selling to.. they are selling to those with limited funds that want to create a bunch of money with non of their own.. can it happen sure in some instances. but 95% of the people that buy those course read those books read those blogs if they truly have no money or no basic skills will for sure fail.
just like McDonalds is not going to sell you a franchise if you dont have the money for one.
just try to buy any franchise they have to qualifiy you they don't want a bunch of failed franchisors..
but wholesale gurus they could care less if you make it or fail.. you pay them anyway.
if they cared they would qualify you before they took the money.. IE my course is 20k but you need 100k liquid to start.. prove it then I will sell you my course. that way you have half a chance at success at least the money half.
but no not only do they not qualify you they talk you into going into massive credit card debt on top of it all...
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3 Reply
Matthew Olszak
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
8y
It feels shady because it is. If you don't have the funds to close, or access to funds (IE financing) along with the intention of closing, you could literally ruin someone's life. Many folks who respond to wholesaler marketing do so not because they "appreciate" or value the offering/service, they do so because they are desperate. Then the wholesaler makes promises without any recourse if they can't follow through. What if - What if they need the cash in 30 days to continue to pay for their spouse's cancer treatment, or child's transplant, or mother's hospice care? Do you feel confident enough you can get them their $$ in the time-frame you promised?
Contrary to popular guru mouthpieces you don't get successful in REI by "wanting" it enough. Making a big enough effort won't make you successful either. You need money, or access to money. You need a network. You need education on valuation models. You need to know the processes. And you shouldn't be earning those badges along the way at the expense of an inexperienced seller. The "just do it" and "figure it out" as you go is doing so at someone else's expense. Many have no problem with that, but those folks rarely are successful in the long term.
Now, if your question is - I have a great deal and want to know how to get financing lined up - well that's quite different than how I read the current one that you feel bad offering on a property you know for sure YOU can't close (or have no intention to do so).
5 Reply
Trevor Muska
OP
Member since 2018 · 17 posts · 9 votes
8y
Several of you have responded saying I should feel shady as if this is something i do or planned to do. I asked the question because it seems like a lot of people are doing this and it doesn't seem right to me. I wanted clarification on if this is a common practice in real estate or not.
I realize the phrasing may be misconstrued haha.
0 Reply
Matt M.
Realtor · Denver, CO · Member since 2013 · 2k+ posts · 1k+ votes
8y
Does your contract have a "good faith" clause? Ours do out here, and I consider it "bad faith" and a violation of the contract if you represent that you have funds, but really don't.
There is also a spot where you can check "does not" have funds immediately verifiable, so you are essentially disclosing that you don't have the money and acting in good faith.
You can get a pre-approval if your ducks are in a row. It will help you weed out the "partners" who aren't serious.
2 Reply
Liz Cole
Camano Island, WA · Member since 2017 · 91 posts · 42 votes
8y
@Trevor Muska
So heads up< I haven't done any deals.. but just some thoughts. I understand what your problem is.
I'm assuming by your remarks you might be looking for hard or private money. If you had a deal today, where would you go to try and get the money? Start at those places. Maybe find a lender that willing to work with you and see if you can get a pre-approval letter.
Even if it's not realistic to think they would do it, you'll get used to talking to them! WIN. :)
1 Reply
Grant Rothenburger
Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes
8y
Originally posted by @Trevor Muska:

I wouldn't make an offer without having confidence in my ability to secure financing. However when I approach a potential investor they are going to ask to see the "deal." If I haven't made an offer then there isn't really a deal to look at.
I dont see how getting a property under contract while you secure your financing is any different then what a wholesaler does.
Its the cat and mouse game that applies to starting any business or career. Need a deal to get investor and need investors to get a deal.
I can get qualified using a traditional loan or maybe even an FHA but i would prefer not to. Would the smart play just be to get qualified and use the traditional loan as a backup if I am unable to secure an investor?
Don't lock up a property without knowing you can close or find someone who can.
Good wholesalers won't put a property under contract unless they KNOW they will sell it. Also, I like to be honest (I'm not a wholesaler, I've done a couple of wholesales in the past) and tell the seller what my intentions are. As long as they're motivated, they just want their money or to walk away.
I think it would be smart to get pre-approved for a backup.
0 Reply
Ian WalshBusiness Member
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
8y
Find a hard money lender in your area. A good hard money lender will fund a good deal.
1 Reply
Darrin CareyPro Member
Lender · Dayton, OH · Member since 2008 · 1k+ posts · 705 votes
8y
My First Rule: I NEVER put a property under contract unless I know I can close it. I may wholesale it, I may get financing from the bank or a Hard Money Lender, or I may just pay cash. However, that contract is my promise to the seller that I am buying their house. (due diligence still applies),

You need to get that part sorted out.
Kudos for recognizing the inherent moral dilemma. There are too many who do not, and leave a lot of problems behind them.
2 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Matthew Olszak:

It feels shady because it is. If you don't have the funds to close, or access to funds (IE financing) along with the intention of closing, you could literally ruin someone's life. Many folks who respond to wholesaler marketing do so not because they "appreciate" or value the offering/service, they do so because they are desperate. Then the wholesaler makes promises without any recourse if they can't follow through. What if - What if they need the cash in 30 days to continue to pay for their spouse's cancer treatment, or child's transplant, or mother's hospice care? Do you feel confident enough you can get them their $$ in the time-frame you promised?
Contrary to popular guru mouthpieces you don't get successful in REI by "wanting" it enough. Making a big enough effort won't make you successful either. You need money, or access to money. You need a network. You need education on valuation models. You need to know the processes. And you shouldn't be earning those badges along the way at the expense of an inexperienced seller. The "just do it" and "figure it out" as you go is doing so at someone else's expense. Many have no problem with that, but those folks rarely are successful in the long term.
Now, if your question is - I have a great deal and want to know how to get financing lined up - well that's quite different than how I read the current one that you feel bad offering on a property you know for sure YOU can't close (or have no intention to do so).
I want to copy and paste this and put it on every wholesaling thread as long as you don't copy right it ? and then sue me for tying up a thread response with no consideration ? or ability to think on my own to do my own responses :) great post... well put.
Bill Gully has it appears retired from BP but he said it best.. wholesaling as taught by gurus is just a stain on the industry.. the Gurus make the money.. Granted the 1% rule is alive and well just like any other direct marketing.. 1% of those that try to wholesale will be doing it a year from now.. and most will be broke.
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4 Reply
Thomas M.
Investor · Fort Wayne, IN · Member since 2016 · 48 posts · 13 votes
8y
You're on a slippery slope. Do the right thing and get pre-approved with a lender or investor like all the others have recommended. It will make your life a lot less stressful and keep you out of trouble.
0 Reply
Hana Brownsell
Denver, CO · Member since 2018 · 7 posts · 3 votes
8y
Fair concern, but sometimes thats the name of the game! If you're putting in the good faith effort and reasonably think that you'll be able to go through with the deal, that is not shady. Happens everyday.
2 Reply
Liz Cole
Camano Island, WA · Member since 2017 · 91 posts · 42 votes
8y
@Trevor Muska @Joe Splitrock @Alexander Felice @jay
@Jay Hinrichs @Matthew Olszak @Grant
@Grant Rothenburgerundefined
WHERE did the OP say he was wholesaling deals? It sounds like he just can't qualify for a conventional loan on his own. Hard Money and maybe Private money and other unconventional financing or find a partner that may not care about that because they focus more on the Asset, right?
Not saying he's being realistic, but ...
Trevor is your intention to wholesale the property? Do you have any cash to start with?
Clarify what your intentions are so we can all stop ASSuming.
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