Stupid Newbie question time

17 Replies

I wrote an offer on a property in Richardson, TX today. It's an REO, but the bank is taking all offers. Mine is the first written contract they have received. I offered about 65% of a very conservative ARV - rehab. The house is in good condition as is, and it's in a great location.

Here's my quandary...

They are asking for Proof of Funds.

I'm wholesaling. I don't have POF, because I never planned to close on the property myself.

Suggestions? How do I handle this?

I'm sure several of you are LOL right now and that's ok. But, when you stop laughing, could you please explain to me how I should have handled this and what I can do now?

Thank you!

Explain to whoever is asking for POF that you are wholesaling the property. You should ask your investor for proof of funds and tell him why. If he asks for details on the deal, be upfront about everything with everyone. It'll work out much smoother. I haven't done this myself but I've read about similar situations here on BP. All of the truth comes out at the closing table.

Personal opinion, don't write offers if you cannot close the deal yourself.  You are tying up someones property, This isn't a game . It's a business and  should be treated like a business.  

Signing a purchase agreement is just that; it is a statement you intend to close on the property and have the ability to do so not "I am trying something I read about online and don't have two nickels to rub together and I sure hope I can find a buyer", transaction.

You will find many here who will argue that point and don't agree but you are being disingenuous if you sign without the intent to close.  Now if you actually have a buyer ready willing and able thats different.  Nothing wrong with wholesaling but have your buyers before you tie the proper up.

On the rare occasion I am a seller I will not accept a cash offer unless it is accompanied by a POF from a local bank. Not to offend you and you should ask about anything you don't understand here but You should already know the answer to your question before you tie a sellers property up. Too many people tying up desperate sellers with no end buyers and no understanding why that is wrong to do.

With REO properties, you are not going to get around the POF. Banks won't let you wholesale, you will have to double close. Get a POF from your buyer if you already have one lined up. And, I agree with @Damon Armstrong  , be up front throughout the entire transaction.

You could also try getting a POF from a hard money / private lender and then close with your buyer.

Hey Hattie

We all do things in this business that we learn from. I generally agree with these guys comments, however, you are where you are, so lets solve the problem. You can get a POF from a transactional funder, but in order to do so you must have your end buyer in place and they will want specific details of the transaction and your end buyer. The lender will not allow you to wholesale, so you will need to take title and do a double escrow using the transactional funders money, then selling to your end buyer all on the same day.

I havent done this, however I have read that some guys will write the offer in an entity's name and just sell the stock of the entity to the person who is buying from you. In doing this, the lender doesnt know that you have actually wholesaled the deal because the entity (LLC, or S-Corp) is still closing on the deal. You just accomplished this by selling the entity that holds a purchase contract as an asset or a right to complete the purchase.

I agree with what's being said above. I'm working my first deal right now purchasing a Fannie Mae REO and Fannie Mae requires POF to be sent concurrent with the offer. The big question right now for you is: Do you have a solid buyer lined up? If so, see if they will put their purchase money in an escrow account in your name...then provide POF from that escrow account. If the buyer won't do that or you don't have a buyer then transactional funding is what you'll have to do. If it were me I'd work my tail off to line up a solid buyer first, though. Do you have an EMD on the property? Or just an offer on paper?

Originally posted by @Martin Scherer:

Personal opinion, don't write offers if you cannot close the deal yourself.  You are tying up someones property, This isn't a game . It's a business and  should be treated like a business.  

Signing a purchase agreement is just that; it is a statement you intend to close on the property and have the ability to do so not "I am trying something I read about online and don't have two nickels to rub together and I sure hope I can find a buyer", transaction.

You will find many here who will argue that point and don't agree but you are being disingenuous if you sign without the intent to close.  Now if you actually have a buyer ready willing and able thats different.  Nothing wrong with wholesaling but have your buyers before you tie the proper up.

On the rare occasion I am a seller I will not accept a cash offer unless it is accompanied by a POF from a local bank. Not to offend you and you should ask about anything you don't understand here but You should already know the answer to your question before you tie a sellers property up. Too many people tying up desperate sellers with no end buyers and no understanding why that is wrong to do.

For the record...I am entirely transparent with every conversation I have and every deal I attempt.  I don't feel there is anything disingenuous about putting a contract on a home, when there is enough margin to ensure the deal can be sold to one of my investor buyers.  However, I also protect my buyers and don't waste their time having them look at deals I don't have under contract.

I also don't appreciate you suggesting I am treating this as a "game".  I am not a child.  I've been in corporate leadership for 25 years and know what business is.  I take this very seriously.  However, I am learning a new business.  Mistakes are part of life and the rate of mistakes increases anytime we undertake a new venture.  I asked an honest, legitimate question seeking advice from more experienced investors.  I didn't ask for a lecture from someone making assumptions about my personal motives or financial condition

To the rest of you, thank you for your input and guidance.

Originally posted by @Kevin R.:

Hey Hattie

We all do things in this business that we learn from. I generally agree with these guys comments, however, you are where you are, so lets solve the problem. You can get a POF from a transactional funder, but in order to do so you must have your end buyer in place and they will want specific details of the transaction and your end buyer. The lender will not allow you to wholesale, so you will need to take title and do a double escrow using the transactional funders money, then selling to your end buyer all on the same day.

I havent done this, however I have read that some guys will write the offer in an entity's name and just sell the stock of the entity to the person who is buying from you. In doing this, the lender doesnt know that you have actually wholesaled the deal because the entity (LLC, or S-Corp) is still closing on the deal. You just accomplished this by selling the entity that holds a purchase contract as an asset or a right to complete the purchase.

Thank you Kevin. That's very helpful. I have shied away from REOs to this point, and I am reminded why. I do have buyers, but I also do try to not waste their time, until I have a contract in place. Lesson learned...order of operation changes, if I decide to pursue another REO.

Thanks again!

Hattie

@Hattie D.   Perhaps you don't read many of the threads on BP.  There is currently one of over 100 posts on just this topic of tying up property without an end buyer in sight.  I do not question your integrity or sincerity but it is giving wholesalers a bad name when people cannot close because they couldn't find a buyer or close the deal.  I believe you line up buyers first and then tie up the property or have cash to close and then find a buyer.

Your question implies a lack of knowledge about the process.  No harm in that I certainly do not claim to be all knowing and I learn new things all the time.  Ask questions that is what BP is here for but ask them before you tie up someones house not after.

As I said I won't accept any offer that is all cash without a POF from a local bank--actual funds not some promise from a guru who as part of his marketing provides his students with a POF's.

People make mistakes when they move to a new enterprise no doubt but that doesn't excuse not preparing.  You say you were in corporate leadership for 25 years can you imagine going into a meeting to give a presentation and not being prepared---I doubt it. You prepare before so that you can give a great presentation.

@Hattie D. Don't worry about it! Live and learn! @Kevin R. is absolutely right, we have the problem so find a solution. There is no amount of preparation/reading that will remove or prevent all problems. There is soooo much info on BP...but there is also soooo much info on BP. You can't possibly move through it all.

@Hattie D. , you're doing great! You're taking action and asking all the right questions. 

I a wholesaler myself and have a short story for you wtr to having cash buyers first or not.  I'll *try* to be brief.. 

I once had a very motivated seller lead in an outlying area with few cash buyers wanting ppty in that area. It was a job transfer situation and they needed to sell quickly and wanted a certain price. I ran the numbers and it was tight at their asking price, but possible. I did not think my current list of buyers would work. The owners told me that they felt God had sent me to them (this isn't the first of such occurrences btw).. whew, what pressure. I told them up front I don't normally buy in this area, but thought I could make it work. I put the ppty under contract. This was not a listed ppty, it was off market. I told them my funding partner will need to inspect and approve the deal.. Had 10 days inspection. I called my normal buyers.. all said no. I sent it to my entire list of buyers.. no takers. I went on craigslist and postlets.. No buyers.. I called the owners and let them know my normal funding partner didn't want the deal due to location which I was afraid might happen. I told them I know and network with other investors and might be able to find a new funding partner to fund the deal, if they would give me some more time.. They agreed. I called and emailed a bunch realtors who had recently sold to cash buyers in the area.. Found a cash buyer - yea!!  The cash buyer said he wanted me to pay his realtor's fee. What?? (what's up with some investors.. LOL) My wholesale fee was small already to make it happen for the sellers. But paying the realtor fee too meant I would make ~ $1K.  So, we agreed and made it happen. Seller moved out on time and made them *very* happy.  Buyer rehabbed it and made money. The little money I made on that deal didn't even pay for the marketing cost to find the lead.. But, I slept well that night!!

Keep moving forward , don't let naysayers distract you, be open and honest and remember, we're helping people who need our help.. 

@BrandonLuke

@Gary Dashney

Thank you both!  I appreciate the encouragement.  I try to be upfront and transparent in everything I do, because I do like to sleep well at night!

@Hattie D., good on you for getting a good deal under contract. The POF thing is just another pain we go through. The point is to keep "tire kickers" from tying up property, but you're not that.

You're not in my market area, but I'd otherwise be interested. My goal is to close on every property that I get under contract. The sellers of the world cannot ask for better than that.

What I find really gives wholesalers a bad name is when they find retail deals, then pump up the ARV proforma and kick them out to the buyer's list, sometimes without even getting them under contract.

You've got a great deal looking for a home. You know you'll be able to sell it, right? How quickly can you find your buyer? Does you bank realize that you're planning to assign the contract? (Out here in L.A. that's virtually impossible.) Try to get as much time as possible to find a buyer who will put up the POF and EMD, then find that buyer. You can do this,

Once you've closed this one go back and talk to your cash buyer to ask if he might want first crack at the next deal you find. Put this guy on speed dial and call him next time you're making an offer. Ask him if he has colleagues that he would pass a great on to if were inclined to pass on it. You can build a effective buyer's list this way and never have to face this problem again.

Lots of others gave you more practical advice on fixing this little problem. I'm hoping my comments were encouraging and forward looking. All the best success to you going forward.

@Tom Mole  

Thank you.  Your response was not only encouraging but instructive. 

As an update...There is no issue here in Texas with assigning contracts, unless you're dealing with an REO!

I have basically done what you suggested without knowing it.  I sent the deal out to some investor buyers I've connected with recently.  Lots of interest and lots of tire kicking.  However, one stood out.  Looked at the property within 30-min of contacting me and made an immediate decision to move on the deal.  I took my normal approach, which is just to be as honest and transparent as possible, so I just explained the situation.  I also told her I was taking this as a learning opportunity and validation that I was on the right track in terms of evaluating a deal.  I offered to just let her do the deal directly.  I would simply walk away with a valuable new piece of my education.  She was very gracious and said absolutely not, because I did the work to find the property.  She's working to get the property under contract herself AND pay me the wholesale fee. 

I love being honest!!

Thanks again,

Hattie

@Hattie D. ,  That's awesome!! Good job and congrats!

@Hattie D., 

Awesome outcome!! Good job! You can be the poster child for "Never, never, never give up!". 

Now you DO have a buyer's list. Doubters kick rocks, here comes Hattie! 

Time to find another great deal and do it again. Keep the community posted!

Congrats!

Update...

Likely due to my bumbling on the front end, there was a qualified offer accepted before my investor got her contract together.

That said, I'm not discouraged.  The mistake actually turned out to be a blessing in disguise as a test balloon that had buyers coming out of the woodwork.  The Dallas market is incredibly tight and people are clamoring for opportunities.  I'm sure most of those folks who have asked to be added to my buyers list will turn out to be nothing more than tire kickers, but there are a couple who I'm certain were serious.  And, as @Tom Mole  

said...I have a buyers list NOW! 

I have moved on to other potential deals and will probably stay away from REOs, until I'm in the position to provide a POF at contract submission.

Thanks for the encouragement and support!!

Hattie