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?
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.
@Liz Cole thank you. I simply was just drawing a comparison to wholesaling. I do not plan to wholesale and probably never will.
All I want to do is buy a duplex or triplex and owner occupy 1 unit short term to get my feet wet in the industry. I'm not sure why everyone went off on Gurus.
I am an engineer fresh out of college but I have a stable job and cashflow. I have people around me who also may want to invest depending on the deal.
All I wanted was to clarify the process in how deals come together when the owner was in the middle of private lenders and sellers.
Look at the House Hacking info. Get commitments and deal criteria from the people willing to help. Maybe a private loan and in a year or two, refinance the deal. Maybe you could find a fix-up 2-3 plex..and gain a little extra equity while you're at it. Once you have the private money figured out you can write a contract on a property. No shame in that.
Are you sure you can't qualify for an FHA loan? (regular or fixup type)
@Liz Cole I could qaulify for FHA. I'm just nervous about the owner occupancy requirment. I think I will get qualified for an FHA and keep it in my back pocket just in case other financing falls through.
Investor · Cleveland, TN · Member since 2016 · 279 posts · 187 votes
8y
The short answer, secure funding first.
The way the question is worded allows for a lot of speculation about why you're unsure of being able to close the deal. The ambiguity led to a general presumption that you were planning to wholesale properties without the means to close on them. And the statement about feeling shady implied you were feeling pressured, either internally or externally, to do something you didn't really like.
Just my 2cents.
Secure funding, either conventional or hard money, then put it under contract. You're not required to use the lender that promised funding, it just shows you are loanable.
Cybersecurity Engineer · Dallas, TX · Member since 2015 · 11 posts · 9 votes
8y
When I was buying homes directly from motivated sellers, using "kitchen table" negotiations, I could directly see in many cases how desperately they needed to be "rescued" while not getting f*cked over. I would not have made any offers if my ability to close the deal was in doubt. But the solution is simple: call a bunch of hard money lenders, find the best terms, and figure our of you can cover whatever they wont cover. If you have savings or a second lender or any other source of funds, and you are confident they will approve the deal when you present the details, then you can proceed with making offers. But if you haven't done this legwork, I would consider it very bad ethics, because their foreclosure clock is ticking down, and if you chew up a few weeks of that time, it could really screw them over. Always remember the Golden Rule.
San Antonio, TX · Member since 2015 · 20 posts · 6 votes
8y
#1. Find a reputable Hard Money lender, someone that is recommended by someone in your personal circle.
#2. They'll do a letter, similar to a pre-approval stating that they have funds to close. Make this financing part of your initial contingency.
#3. When you're doing inspections, etc., the hard money lender will see if the deal will work or not. If not, this is in your escape clause because the lender won't do the loan.
Always have your offers in writing, and accompanied by a lender letter (even if it is not a traditional lender). I will always advise my clients to not accept an offer that doesn't have a basic pre-approval letter. Why would they tie up their property with a potentially 50/50 chance of success offer.
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.
I never said he was wholesaling deals. Read his third post and he is the one that drew the comparison to wholesaling. Nobody here was assuming anything, we just read the part you didn't.
Lender · Paramus, NJ · Member since 2016 · 118 posts · 33 votes
8y
@Trevor Muska - you mentioned that you may owner occupy one unit. Most Hard money lenders wouldn't finance owner occupied (or partially owner occupied) properties. We just don't have license for OO lending. So your options may be limited to conventional lending or friends/family.
Specialist · Fayetteville, AR · Member since 2018 · 17 posts · 20 votes
8y
I think it has been identified that this is not a chicken or egg scenario :)
You mentioned having some friends that may be interested in investing with you. Feel them out. Let them know what you are looking to do, what you would need from them and what you will be able to provide them in return (or what they would want in return). Understanding the capital you have available to you, and the cost, will help you figure out your next move.
Lender · Berkeley, CA · Member since 2017 · 1k+ posts · 549 votes
8y
Don't overthink it.
Have your private money in place, but also talk to a lender beforehand. Find out what they'll want from you, and how long it'll take to close in case you're in a bind. With a HML you'll need approx 25-30% of the total loan amount to close the loan.
Just make sure you have options, so you don't screw the seller over.
Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
8y
Maybe you need a different strategy? Can you do subject to in your area? Some people make two offers to the same seller or maybe more. I can offer you $100,000 if we leave the current financing in place....or if I need time to secure cash funding, that takes longer and I can only offer you $80,000. Which works better for you.? Do you want to close this week for $100,000 or a month from now for $80,000. Be honest and give them a choice.