After the Offer is Accepted

[Christopher Blanco]

I am working through some details and trying to understand the process of getting started in a Fix and Flip/ BRRRR hybrid real estate investing strategy. I think my biggest source of confusion is between the offer and the closing. Please tell me if I am wrong in my understanding on how this works:

1. My offer is accepted and the house goes under contract
2. In my offer, I put a 7-10 day contingency for due diligence on the property
3. I put up "earnest money" to hold the contract
4. In that 7-10 day window, I need to line up the following:
   • Ensure the utilities are on for the period in my name
   • Schedule a walk through with a either a GM or Home inspector
   • Begin to work through financing the deal
   • Get Bids from Contractors
5. Once the inspection is complete, I need to develop a Scope of Work and get bids from a Contractor
6. If all the numbers work out, then I pull the trigger on the deal

If my assumptions are correct, then my questions are as follows:

• How do I engage lenders without having a deal? I would like to know the likelihood of getting approved for a deal, do I need to identify a deal before that happens? 
• Can I interview GC's BEFORE I have a house under contract? If not, how do  get them in the property and bids back in that 7-10 day window? Do I just come here and ask for referrals?
• Can you REALLY schedule all of these things in 7 days? 

[Jeff Copeland]

What type of financing do you intend to use? The trouble with many BRRRR-candidate properties is they may not qualify for conventional, FHA, or VA financing, necessitating cash or hard money for the initial purchase, and then a refinance (the second R) after renovations are complete.

So, if you are using hard money, for example, then you absolutely should have it lined up before even making an offer. It is customary to include your proof of funds or pre-approval letter with the offer, and many sellers will not even consider an offer without it.

Your contract should specify your inspection period - and you are generally correct on how that works.

If you are using cash or hard money, you generally do not have a financing contingency, which makes it even more crucial to have your funding lined up before making the offer - because once the inspection period has passed, you generally cannot and do nor get your earnest money deposit back. (On that note, make sure you document your contract effective date and know how time is counted in your contract...is it business days or calendar days? Do weekends and holidays count? What if the last day of the inspection period falls on a weekend or holiday, does it roll over to the next business day?)

If not using cash or hard money, your contract should also outline a financing contingency, which has it's own timeline, such as:

• Make application for financing within 3-5 days of contract acceptance (this is the next step after getting pre-approved. You still have to apply for the specific loan in the amount of your purchase once you have the executed contract). 
• Order and receive an appraisal within XX days.
• Receive a loan commitment from lender within XX days (or XX days prior to closing).
• Final funding approval XX days before closing.
• There may be other "checkpoints" - you need to know your contract inside and out.

Finally, to answer your other question: Yes, mortgage lenders will provide a pre-approval letter for an investment property. The pre-approval process will follow generally the same process as an owner occupant. But the underwriting requirements for the actual loan may differ (for example, the down payment/LTV requirement is typically 25%/75% versus 20%/80% for owner occupants).

Conversely, your hard money lender should be accustomed to providing proof of funds letters verifying you have your finding lined up if you're going that route.