QUESTION:
Say, I’m doing a wholesale deal (double close deal). I have a buyer that wants to purchase the from me, the middle man. I have a seller that I purchased the property from. Now, this is where it gets fuzzy to me, the seller wants to see some form of proof of funds for the property that I am purchasing, how do I show proof of funds if i’m only the middle man.
If I didn’t clarify the question well enough, please let me know. I will try to better explain.
the seller is doing the deal with you so i would bet he could care less about the financial status of your buyer. Do you have the credit/funding in place to do the deal?
does the seller know what you’re doing?
but if i’m buying the property from him (the buyer) when i make the offer, won’t he/she want to have proof of funds or a deposit from me? even though I know I’m planning to wholesale it to someone else?
I have never once had a seller ask me for proof of funds. They just want to get their house sold. That being said, you should not be tying up people’s properties if you do not have the means to close (cash or financing). Most people who are willing to sell at a steep discount are in some sort of distress situation, and you will be making it a lot worse if you tie up the property, and then are not able to perform.
If you are making offers on mls properties, in most cases they are going to ask for proof of funds, or a pre-approval letter from a lender.
Hope that helps.
Steph
When you getting preappoval from the bank wont they want information on the property that your trying to purchase or is it possible to just get approved for any property?
You can get pre-approved just generally. The bank looks at your application and decides how much they are willing to loan to you.
Then after you find a property, the bank looks at that specific proprty and decides how much they are willing to loan on that proroperty. It’s probably not going to be an amount that is larger than the fist approval, of you, generally. Although, you can get more if it is an income producing property, because they will count part of the income from the new purchase when they are deciding how big a payment you can manage
some REO’s will require POF specifically fr the proeprty you are offering on.
having a POF with the offer price, the property address and the date of the offer goes along way to giving you credibility…
i still need more clarity. I just need this point to stick. I have a seller, whether they are from an mls listing or not. I tie up the property with a contact to purchase. I find a legit buyer for this property that has the availlable funds to purchase the property from me. Now, this is my question, being that I personally don’t have the funds, because the funds are coming from my buyer, what if the seller of the property that i am purchasing wants to see POF from me, which I personally don’t have because i’m wholesaling to someone else who does have the funds, what do i do in a situation like that?
Does this happen often or is it unlikely?
Unless you come off like you have no idea what you are doing, then it is highly unlikely that a private seller is going to ask you for proof of funds. I’ve never had it happen, even when I was starting out.
If you are offering on an mls property, 9 times out of ten, you ARE going to have to provide a pre-qual letter or proof of funds with your offer.
Steph
[quote author=tampasteph link=topic=33660.msg158452#msg158452 date=1199551082]
I have never once had a seller ask me for proof of funds. They just want to get their house sold. That being said, you should not be tying up people’s properties if you do not have the means to close (cash or financing). Most people who are willing to sell at a steep discount are in some sort of distress situation, and you will be making it a lot worse if you tie up the property, and then are not able to perform.
If you are making offers on mls properties, in most cases they are going to ask for proof of funds, or a pre-approval letter from a lender.
Hope that helps.
Steph
Tampasteph,
With that being said, how do I show pof when I make offers on properties that are on the mls? How do I show proof if my buyer has the funds? Should I get an approval letter from them, but that letter would have their name on it not mine. ?? Reason y I’m asking is because, my partner & i have everything pretty much in place to begin our business. I’m just stuck on this situaion.
If you are making offers on mls properties, you will need (in most cases) either a pre-approval letter (for yourself, not your end buyer) from a lender (you can get a generic one from a hard money lender- ask around at your local REIA for recommendations) OR proof of funds (your funds, not your buyers). If you do not have proof of either of these things, or the ability to actually purchase the property, then you should not be signing contracts. What happens if you can’t find a buyer? You need to get your financing lined up before you start making offers. There are hard money lenders that will lend you the money if the deal is good. It might take you some effort to find one, but they are out there.
Steph
tampasteph,
Thanks for your help. it is clear now. hypothetically speaking though. (these are just my thoughts and ideas from reading and attending r.e. classes/seminars) when I tie up a property, I have a buyer, lets say at the last minute something happens and the buyer falls through. This is where I learned that contigencies (exit strategies) in the addendum section of the contract comes into play. true?
secondly on a different topic, this just came to mind. lets say I purchase a property, i get the funds from a hard money lender. I keep the property and then refinance the property so that I can repay the hard money lender. can you explain how that situation works. i’m cloudy about that too. I’m just thinking of different possible situations.
Hi Blueprint,
There is certainly nothing wrong with using contingencies to protect yourself, I’m just saying that if you don’t actually have the means to close, then you shouldn’t be signing contracts and tying up people’s houses. You can always use options, or bird dog, until you are in a position to close deals. Also, if you are constantly backing out of contracts, it will not take long for you to develop a bad reputation. There’s a guy in my market who was going around tying all kinds of properties up on the mls, and then backing out of his contracts (because he was offering too much and his deals sucked), and he has really made a bad name for himself.
I don’t really have any experience regarding refiing (is that a word?) out of hard money loans, but I would not think it would be any different than a regular refi. Some hard money loans will have pre payment penalties, so you would want to be aware of that.
Steph
tampasteph,
I certainly don’t want to do that, tie up properties and be backing out of them. I take pride in my name and the work/service i do. so i’m not trying to allow that to happen. let me throw this at you. I have identified my target area. The median prices in this area falls between 250k and 300k (working class area) now again, thru my studies, it says i should offer between 20-40% below fmv for working to middle class areas and 35 to 70% for low income areas. how do these percentages sound to you? or anyone else?
Also, refiing, i know what you mean. lol
Hi Blueprint,
If you do not have any buyers lined up yet, then I would definitely try to be closer to the 40% below market range.
I’m sure there are investors who are willing to pay more than that, but until you find them, I would err on the side of caution and offer super low. This way you will not get stuck with a property you can’t sell.
Good luck,
Steph
tampasteph
so to be clear, i want to offer the seller 40% below fmv for the property? so if a property is listed for 300k i should offer 180k for it? is that right
?
Blueprint,
It’s hard to give advice like that since I don’t know anything about your market.
I think 60% of ARV would be a safe bet, though. You also really need to get to know your home values so you can estimate an accurate ARV. If you can’t do that, then your 60% of ARV formula is useless.
Steph
let me get this right, so when i see a property i like, i should offer the seller40% less for the property? so if a property lists for 300,000, i should offer 180,000 to the seller to purchase the property?
Blueprint,
It really depends. What are you planning on doing with it? Wholesaling it? If so, you will want to find out what investors are paying for homes in that area. How do you do that? Network. Study the recent comps. Take investors out to lunch and ask questions. Study the market. Go to REI meetings and observe. Etc. Etc. You really need to know your market before you jump in and start making offers.
Your offer should be based off of the ARV (after repaired value) of the property, NOT the list/asking price. You HAVE to know what a property is worth before you can make an intelligent offer on it. The listing/asking price of a property is not always a true indication of what the property is worth.
You have to do your homework.
Steph
yeah i plan to wholesale it… I have studied my market. i have realtors and etc. i have actual comps and printouts of the breakdown oh sold homes, under contract homes and active homes from realtors in my market. the numbers i threw at you was just for example purposes. thats all.