This is the second time I've gotten to the offer stage on a fix and flip property. In my market, Los Angeles, these properties go FAST. It was listed on Thursday, I saw it Friday and emailed a few HMLs to ask for proof of funds letters to go in my offer, and I need to submit my offer tonight and I haven't gotten any letters back.
I've already been pre-approved. Aside from predicting the future, how can I change my process so that these letters come in a more timely fashion?
My realtor says if the lenders aren't getting back to me on the weekend then they aren't good enough to work with me. But I also know these are people who need a work/life balance.
All I need is a letter stating:
Ashley is approved to offer cash up to x amount and a quick close on property 123 Main Street.
That's it! Any suggestions?
Try asking your lenders to calculate the absolute highest amount you're qualified to borrow (assuming you're using a HELOC or LOC and not having to calculate for each individual property). Have them create a general qualification letter
"Xx bank qualifies ashley for xx amount for xx property"
And because they've already done the absolute highest borrowijg amount calculations, they'll just have to fill in the blanks.
If this method doesn't work then try asking your lenders how to expedite the process for underwriting and providing pre-qual letters within a quick time frame.
Hopefully this helps and best of luck on getting your flips!
It should take no more than 15-30 minutes to get that letter between 9a-9p, any day of the week for an approved borrower.
@Account Closed I wondered what the process was after I made the offer. That's helpful to know. Thanks!
@David Weintraub I wish your company did loans in Los Angeles! :)
@Ashley Benning , many sellers (at least the more sophisticated ones) won't accept proof of funds letters from hard money lenders. The reason is that YOU are not really approved, as you would be for conventional financing. With hard money, it's the property and the property's value, purchase price, repairs, etc. that needs to qualify. And the lender hasn't looked at the property, other than to fill the address into his standard POF letter.
So, in a hot market the seller will look first for a cash buyer with no financing contingency, second for a buyer with approved financing from a conventional lender, third from a buyer who has been qualified by a mortgage broker, and last, i at all from a buyer with a POF from a hard money lender.
Of course not all sellers, or the brokers representing them are sophisticated, so if you make enough offers you WILL get some sellers that accept you POF letter.
Just to show you how meaningless these POF letters from hard money lenders really are, about 8 years ago a number of lenders published a generic POF on their websites, and told potential borrowers to download the letters, fill in the blanks, and they had an instant proof of funds.
A POF letter is only as good as the lender. A good HML would never give a blanket POF letter unless you had a relationship and history with them. A little off topic, but how do you anticipate making money in the CA market except on appreciation? And if THAT fails, then what? I always encourage CA investors to look out of state for better returns.
@John Thedford I am also looking at properties out of state, but I keep an eye on my neighborhood here in the Valley and if a property makes sense with the numbers I act on it. This one is a fixer, and in a fantastic neighborhood, so there is profit potential.
My other market is Phoenix for BRRRR multi families.
@Don Konipol INTERESTING. I was under the impression working with a HML would read like a cash offer to buyers, and therefore would actually be a leg up over conventionally financed buyers. This is really helpful to know, and the way you explain it makes perfect sense. Thank you!
Some people think that they go HML and just pencil in on their offers that they are using cash because of the POF letter. It's not the case. A "cash" deal is purely one where there is cash in the bank. If you have cash, you can go wire it today. Not the case with an HML. HM Lender can take 7-14 days to give approval. They still will want inspections, appraisals, surveys, title search and insurance. Then they take 48-72 hrs to provide funds once all the docs are in.
HM Lenders still go through an approval process like any other lender. And when it's done, you have a loan against the house.
HM Lenders don't approve every deal, so the buyers end up with egg on their faces after claiming they were going cash.
@Christopher Phillips Thank you for explaining. This is very different from my interpretation from listening to the BP Podcast and reading Investing in Real Estate With No (or Low) Money Down. I'm wondering now if the offer I am about to submit today--which claims cash--is not correct! Yikes.
There will be two or three levels of MLS properties that say "cash only."
Some say cash only due to the condition of the home. They know it will never pass an inspection for a conventional/FHA/VA/USDA loan. That would be a great place to use an HML. Sometimes they say "cash or 203K only."
Some say "cash only" because they want a quick close with no fuss. An HML might still work there with some "convincing."
Some say "cash only" because they mean it. they don't have time to wait or they are tired of dealing with the lending process.
Somewhere in the financing section of your offer you would put that you are using hard money. And include your lender's POF, Preapproval or letter of intent, whatever form they like to provide.
@Christopher Phillips This info is gold. Thank you so much! Time to re-analyze my strategy and make sure I'm offering on the right kinds of properties.
HML doesn't get you cash tomorrow. They still need to do due diligence. A property must be appraised before a loan is issued because the lender is likely basing the loan off of the value of the property.
But we do in fact loan in California.
I don't agree with your realtors comments but I do think you should get this letter within 24 hours.
@Ashley Benning The response from @Christopher Phillips is spot on. In all the offers I've been a part of, a pre-approval from a traditional lender < POF from a HML < POF from an individual partner or family member < POF in personal name showing assets (like stocks) < POF in personal name showing cash or cash equivalent.
Know that some of your competition, when offering on a property they know many others will be going for, emphasize their offer only requires their signature - no lenders, 3rd parties, or anything else... a true cash offer where they 100% control the decision. Think about what you can do to compete with that for the seller who wants a sure thing sale.
I so appreciate everyone's feedback here! I've made some great connections, and have learned a lot about what it is going to take to be competitive. I'll report back how the process ends up evolving on this property. Offer is due in 2 hours!
There is so much good info in this thread. Thanks @Ashley Benning for posting the question.
@Jeremy Michiels Glad my naïveté can be useful for the greater good! :)
@Ashley Benning This is the easiest thing in the world to get for you. All you have to do is ask the right person.
Update: I was contacted by several HMLs after posting here and reaching out via the list on BP and was able to get my offer submitted with LOI by the deadline today. I will hear back from the seller by Wednesday morning.
A NEW complication has arisen: a great short sale property has come on the market this evening that is a better deal even at $100,000 over asking than the property for which I have submitted. But, as a short sale, that could take months to get an answer on. So, if I happen to get the original property and still want to pursue this short sale, I'll have to find a way to fund potentially two properties at once, when I only really have a down payment for one. So, that could be an interesting challenge to overcome. Life is so interesting sometimes.
Thanks again, everyone.
In my market I give them within an hour if I like the deal. True hard money lenders can do that.