Rental Property Investor · Member since 2021 · 6 posts · 0 votes
So I've found a great property to purchase that will be our first investment. This property is perfect for a BRRRR and I actually have a connection with a private money lender. I'm meeting a contractor at the property tomorrow to get some more firm numbers. My question is when do I make the offer? Will I need to secure my finances first or get it under contract first? Has anyone ever made a "cash" offer contingent on financing? That really seems like an oxymoron.... I also do not want to jerk the private money lender around because he could be key in future deals as well. What have you guys experiences been?
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
5y
Hi @Rivers Ford! Your gut is correct! Cash offers are inherently NOT contingent on financing. ALL transactions end with "cash" being used to purchase the real estate, but the difference between the cash offer and the financed offer is who brings the cash. If it is someone else, then that someone else may have some particular requirements that you need to be disclosing to the other parties of the sale.
In general it is wise to have your financing ducks in a row with making the offer, and with private money lenders this is often a verbal consent to the deal (based on observable facts of the deal). Once you have this you may have exactly what you need in order to write the offer. However, you NEED a safeguard against things you discover during due diligence, which is the purpose of the inspection period.
Things you discover during due diligence may not matter at all, or they can fundamentally change the budget of a deal. You need this release valve for your benefit (and coincidentally the benefit of the private partners involved in the deal with you).
Real Estate Broker · Salt Lake City & Oklahoma City · Member since 2018 · 3k+ posts · 2k+ votes
5y
Hi @Rivers Ford! Your gut is correct! Cash offers are inherently NOT contingent on financing. ALL transactions end with "cash" being used to purchase the real estate, but the difference between the cash offer and the financed offer is who brings the cash. If it is someone else, then that someone else may have some particular requirements that you need to be disclosing to the other parties of the sale.
In general it is wise to have your financing ducks in a row with making the offer, and with private money lenders this is often a verbal consent to the deal (based on observable facts of the deal). Once you have this you may have exactly what you need in order to write the offer. However, you NEED a safeguard against things you discover during due diligence, which is the purpose of the inspection period.
Things you discover during due diligence may not matter at all, or they can fundamentally change the budget of a deal. You need this release valve for your benefit (and coincidentally the benefit of the private partners involved in the deal with you).
Rental Property Investor · Member since 2021 · 6 posts · 0 votes
5y
@Will Fraser okay so just to recap, you're saying run the number in the BRRRR Calculator, get approval from the private money lender, then make the offer contingent on inspection not financing? I'm guessing this is still strong than a "standard" offer. We have a very motivated seller that is more worried about a fast close than top dollar.
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
5y
@Rivers Ford you also need to have your re-financing lined up (or as close to lined up as you can get it) before you offer. This is what allows you to exit your private money - you don't want to get stuck with wildly different refi terms than what you thought you would get.
Rental Property Investor · Member since 2021 · 6 posts · 0 votes
5y
@Nicholas L. Okay so I've actually already been working with a mortgage lender because we were actually going to try to buy a condo and fix it up to rent. We are pre approved for a home loan to an amount that double the ARV of this home. This should cover that correct?
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
5y
@Rivers Ford it's not so much about the absolute amount that you're approved for, it's how much the property will appraise for when you're done with the rehab and rent, because the loan amount is going to be based off the appraised value. There are lots of BP threads about what happens when you try to BRRRR and the appraisal comes in low. It's not necessarily a big problem, just something to be aware of.