Earnest Money Deposit Startups
Recently, I've encountered startups and companies offering quick EMD financing at high interest rates (around 3-5% per month). Are borrowers who utilize these funds typically involved in flipping properties? This seems unfeasible for rental investments due to the high cost of capital. Has anyone here borrowed EMD using these services? If so, for what purpose, and how did it work out? Thanks in advance.
It’s mainly aimed at wholesalers.
Imagine this scenario:
A wholesaler has five houses under contract but only has 25K in the bank. The EMD for each house is $10,000. He needs 50,000 just to cover the EMD for his contracts.
Now, a lot of wholesalers do not even put up EMD, which is technically a breach of contract, but that aside, let's continue.
Said wholesaler will make a 20k assignment fee on each of these contracts. He has three options.
Option A : limit his deals, because he can only cover the EMD for two deals.
Option B : do not put up EMD, and therefore be in breach of contract.
Option C : borrow the EMD from the many willing lenders and pull $5000 out of his $ 20000 assignment fee.
Most folks would rather make 75% of $20,000 then 100% $0.
This is not an exhaustive explanation, but hopefully, it gives you an idea of the market These lenders are in.