Will wholesalers work deals with non-cash buyers?

Question

We are looking for our first buy and hold property, and we plan to use conventional financing.  Would wholesalers be able to work with us, or does the financing make it not practical?

Stephen Brown · Answer

As a wholesaler here in Houston TX we only work with CASH/Hard Money Buyers, almost always. Most of our buy and hold buyers who want to use conventional financing, will use Hard Money, (which is as good as cash) to close on the deal, and then refinance into a conventional loan.

Because if it’s a good deal here in Houston, I’m going to have numerous Buyers willing to pay CASH/Hard Money and close on the deal within 7-14 days.

Paying CASH and closing quickly is a primary bargaining tool we use to get the contract.

There would be absolutely no benefit for us to approach the seller and renegotiate the contract and essentially say, “I know we told you we could close in 10 days and you would have your CASH in hand….but we have a Buyer using conventional financing so we will actually need 30-45 days because instead of CASH they will be using conventional financing.”

For a good deal....for any deal I would NEVER do this, just approaching the seller with this could potentially KILL the deal all together.

The only “DEALS” your going to find as @Mary B. mentioned are those properties just sitting on the wholesaler’s books, that NO ONE ELSE WANTS. Which as you can imagine are NOT going to be the best deals.

So you may consider using Hard Money and then refinancing into a conventional loan if you want to stay competitive with other CASH Buyers in a HOT market.

Bill Gulley · Answer

Ah, I see too that it depends on how the wholesaler designs the deal, my response above is to them taking title and selling. If they don't take title, you may be better off paying the fee to them, have them step aside and buy from the owner. So long as your appraisal is good your lender may not have an issue, some do as the wholesaler just purchased the property (in reality) for less than the appraisal. Just purchased as in immediately prior to or at your closing. This kicks in the view of valuation of the sale price or appraised value, which ever is less. A lender may not consider the premium paid to the wholesaler and adjust their loan to value at the lower number.

All of this can come in to play after a loan commitment has been given as all commitments are subject to appraisal and valuation assessments unless such are specifically stated otherwise. I've never seen or heard of a lender being held to a commitment on a residential property where they didn't have an exit, that being one taking only the subject property as collateral.

You need to ask your lenders about the arrangement and see if they are comfortable with it, the wholesaler should disclose amounts to the lender as they may ask, if the fee is reasonable you may not have an issue. You may be able to simply purchase the wholesaler's purchase contract, take that aspect to the lender as well.

Mary B. · Answer

@Leigh Ann Smith

If you get a wholesaler with properties that they have in their inventory where they already closed, then your answer is most certainly.  However, even if you are being financed you may still be able to arrange from the check to be made out to cash to pay to the wholesaler.

Most wholesalers, such as myself, ask for verifiable proof of funds (unless the buyer has already established a good track record) to weed out nonsense. If you are getting financed then your verifiable proof of funds would be a pre-approval letter from a bank that's up to 60days old. This is a tactic utilized if the wholesaler has a property under contract and aim to close within 30days time max. If the wholesaler has several properties that they've closed on already, sitting waiting to be flipped, then there isn't the same rush as when it was under contract. Hopefully this makes sense to you.

Kudos,

Mary

Bill Gulley · Answer

The seller's perception of themselves has no bearing on a buyers purchase money arrangements, in their opinion you're in the business and they are wholesaling, actually there is no distinction as you are the end user/owner. So long as the property will appraise without deficiencies and you qualify you shouldn't have any issue as to what the seller does. :)

Kerry Noble Jr · Answer

Purchase in hard money......refi into long term financing

Vincent Velez · Answer

@Stephen BrownI know your reply was 8 years ago but hopefully you could humor me?A DSCR Loan is specifically used to buy investment properties based on their cash flow ability versus their mortgage cost. Supposedly a loan like this could close relatively quickly because its based on the "deal" not your personal finances. As a wholesaler, would you be willing to work with this kind of financial set up? and if not, why not?A have a wholesaler friend of mine who's just getting started, he told me "Cash or Hard-Money only" but if he has pretty good control over the structure of the deal he is closing, why not offer a 15 day close instead of a 10 day close or 5 day close? are the sellers really in such a rush to sell a house via wholesaler that an extra week to close would legitimately kill the deal?

Leigh Ann Smith · Answer

Bill Gulley , don't the wholesalers typically promise the seller a quick closing? With financing involved, it won't be very quick.

Will wholesalers work deals with non-cash buyers?

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