OK guys, please don’t blast me for asking this question that probably can be answered with a common sense answer, but, I just need to ask it anyway just to make sure I am not missing something. If feel like if I can get a clear answer on how to handle the following scenario, I will be able to put the pieces together. :crossfingers
I am learning about short sale closings, and funding the first transaction (A-B) using a hard money lender, and flipping it hopefully in the same day by selling it to the end buyer (B-C) and collecting the spread.
My question is this:
What happens if I cannot find a buyer for my property in time for the closing and I do not have the funds to purchase the property and hold on to it? Do I forfeit the short sale if I do not find a buyer or even a renter in time? Or is there some other investment tactic that can be used? Maybe an auction? But, with an auction, can I sell a property at auction that I do not own?
Thanks so much for your reply guys.
From what I know, you write your offer with the contingency that you need to find funds, which in your case would be the end-buyer’s agreement to purchase. Once the seller is motivated enough to do a short sale, they should have no real problem with a few escape clauses in the mix. Of course, you also need to specify that you need the ability to market the property in whatever way you deem necessary to get the house closed. Its all in the contract. Explain this to your attorney at the onset and let him put an addendum on the offer that makes provisions for this and any other tactic you want to employ. If the seller doesn’t want to go along with it, then maybe they’re not motivated enough, or that may be a sign of potential drama at the closing table, just say thanks but no thanks and move on to your next deal.
So generally speaking, I present my offer to the bank continigent upon finding funds to purchase the property (which technically I would use a hard money lender to fund the first transaction A-B) and ask for a certain amount of time to find the “funds”, (the buyer B-C).
Typically, what is that amount of time, 60 days or so?
The contingency clause basically provides a way out if you actually don’t find a buyer within the timeframe. 60 days is fair, negotiate for more if you can. Ideally you don’t want to have to use escape clauses to get out of the deals, you want to close the deals and make the money.
With a bank short sale, even if you have the funds to buy the property, the ideal situation is to have the end buyer close at the same time as your closing, otherwise you could stress yourself out looking at upcoming payments and not finding a buyer yet. If you give yourself say 90 days, and start looking for a buyer to close in 30 days, then you work on marketing the property as your number 1 priority. Once you have an end buyer and contract in hand, arranging a double closing and finding a hard money lender for a same day double close is much easier.
Of course, this is just a general outline. I haven’t done a short sale like this so I can’t give you technical specifics at this point but I hope this helps a bit.
Unkerpaulie, You are awesome.
Thanks so much for your direct answer. I appreciate the explanation very much. It’s difficult to do this without someone else to bounce thoughts off of and I can’t afford a coaching program at this point.
This sounds like fantasy talk here. What bank would accept an offer with a contingency stating that you need to find the funds? I wouldn’t even bother putting such a silly contingency in there.
Bottom line is, if you can’t find an end buyer in time… then you withdraw your original offer. You use one of the 10,000 reasons that cause deals to fall apart and you tell the bank you can’t close at this time. Chances are, you still have time until the house goes into foreclosure. So find another end buyer and repeat
NJbirddog is right, you don’t want to put a contingency financing clause, because they already know most people will get a loan. You should start looking for buyers now to build your list. A few ways to build your list would be to call all of the we buy houses guys you see in the newspaper, all the signs and on craigslist to find out what they are doing.
join your local reia so you can drop off your property list on their advertising desk. you can also to auctions to find buyers, someone actually told me that on this forum. post ads on craigslist, backpage, and kijiji every few days letting them know you are the go to person.
you can also mail out of town owners, ask buyers on your list do they know anyone else looking to buy houses. get your own bird dogs and give them a stack of business cards tell them to write their name on the back. any buyers that comes through them will earn them whatever amount you can agree on.