I would like to fix and flip a home that I saw which was vacant. During my research to find the owner, I realized the home is listed with an agent. It is under 10k in an area where homes are selling for 60k. I want to fix and flip the home but I have no funding and can’t get in to inspect it without proof of funds or a loan pre approval. I am new to investing and have come into this because of a swift turn of events in my life so credit for a conventional loan is not good. Does anyone have any suggestions of what I could do?
How do I get to view a property ifI have no proof of funds?
First for most normal homes a proof of funds letter is only required when you make your offer!
Seeing the house is as simple as asking your own buyers agent to meet you at the property (Lockbox) or to arrange access (By Appointment).
Getting it inspected is part of your contract contingencies and can be done during the first 7 to 10 days provided it’s arranged in the contract.
If the purchase is $10k and closing costs estimated at $250 dollars and you estimate $20k to remodel the property then place an ad in your local publications for an investor for $31k who will put up the cash and split the after cost profits with you.
You might also try your linkedin network and friends for investment. 10 friends could put up $3100 each for a 10% fractional ownership of a 1st TD Note.
You’ll discover all sorts of cranks out there marketing property.
First off, nobody is going to show the seller a loan pre-approval on a junker house.
This would be property-specific, and if the property isn’t insurable, which this one sounds like it wouldn’t be, this is a non-starter requirement.
Meantime, you can get a proof of funds letter from about anywhere that provides hard money loans. Find one in your locale, or where the property is, and show them the property you’re interested in, OR get their basic LTV requirements, etc, and have them give you a letter of credit, based on those requirements.
The letter will say something to the effect that they will loan up to 50% of ARV to Joe Fixer Blow in an amount not to exceed two hundred thousand dollars (or something with similar stipulations).
Realize these letters are not worth the paper they’re written on, since HML’s base their lending criteria on whomever has money to lend at the moment, changes in market conditions, how much they have to lend, and whether the lender’s wife is having her period, or not. You know how that is.
Bottom line: IF the HML would loan on this fixer, based on its equity position, without checking your credit (which there will be somewhere, if you look), you’ll have the financing proof you need.
This brings up a point. Find a hard money lender that will lend on the merits of the property alone. You’ll find one. It could be a small operator, but you’ll find one that knows the market, and will loan 40-70% of ARV (less repairs). The interest rates and terms on your first deals will probably be stiff.
However, after you’ve paid back a couple of deals without hiccups, the rates and terms will get more attractive.
Also, HML’s can act as very good second opinions on your deals.
That is, they’ll tell you what they think the property is actually worth, based on their expertise and internal appraisals, and perhaps give you the ammunition you need to renegotiate the price.
For example, if you go hard on a contract, and the HML refuses to give you a loan for the full amount, because they don’t believe the property is actually worth enough, you can use that information to renegotiate the price.
Another little trick, once you’ve got a relationship with a (any) lender, is to ask the lender what they’ll lend, and use that figure to make and negotiate your offer.
In that case, too, you’re coming in as a strong buyer with very good negotiating ammunition, to establish a fair and profitable sales price for yourself.
Hope that helps.
Otherwise, just make your offer contingent upon seeing the property.
Ignore requests for proof of funds letters, and/or loan approvals.
That’s the seller’s (broker’s) opening salvo in the negotiations. There’s no law that says you have to jump those hoops.
In those cases, too, especially if there’s no other known buyers, I might say, "It’s not my policy to reveal my net worth, prior to getting an accepted purchase offer.
However, once I have an accepted offer, I will gladly show you proof of funds, and/or a letter of pre-approval for financing, within 3 days, whichever works for ME."
I’ve been tempted to tell the broker, “If the seller is negotiating a price based on my bank balance, perhaps I should empty my account, and proceed to let him negotiate from zero, and move up. How’s that sound?”
As an aside, I want to say that negotiating deals with sellers directly, it’s better to dress and act like you’re on your last dollar, then to roll in with your BMW, strutting your $10K Rolex and wearing twelve hundred dollar Mezlan loafers.
That might work when you’re trying to impress a broker, who’s controlling competing offers, but it’s not wise, otherwise.
Hope that helps.
Just make your offer, and ignore the seller’s (broker’s) hoops.
Rules are made to be broken, and successful entrepreneurs don’t wait for reasons to break them.
This is all about the confidence an investor displays…if you anticipate issues and are timid in your approach, an agent is going to see through that and not accommodate your needs. Being confident and actually knowing what you are doing will get you the results needed.
I agree with Jay on most of his points…and if an agent is not cooperating with you…let him/her know the requirements of their license to make your offer.
That reminds me of an offer I made to an agent for the bank on an REO…I laid out the offer in detail and the terms were quite unreasonable compared to a traditional deal. She said the bank will never accept that offer…I looked into her eyes and said, Ma’am, you have an obligation to present this offer to the bank according to your real estate license!"
3 days later, I received a call from the bank’s attorney with closing instructions!
If you know what you are doing and are confident (not obnoxious)…even if you have no money in the bank in that moment, you will get some deals closed.
Hope this helps.