Sign and THEN find a lender? Really?

Question

I have read that when you find an off-market deal you should sign it and THEN go find a lender.  Is it really that easy to find a lender?  That fast?  Once I put a property under contract the clock starts ticking, and closing fast will probably be part of the appeal to the seller. What if I can't come up with a lender, or with a lender in time?  I get that my contract will have a funding contingency clause, but from my reading it's a bad practice to contract a property that you don't really intend to buy.

Here's the real reason I'm asking: I have some experience with mailing lists, websites, and the marketing that goes into them, and I think if I were to do some direct mail marketing I could probably find deals.  But I don't have enough cash to buy one outright, and I know that traditional lenders probably won't lend on a property that needs more than a little work.

Someone set me straight.  Thanks!

Joe Funari · Answer

@Paul Kubin Here in the Dallas/Ft.Worth market if your purchasing a property using any kind of financing you will need to provide a pre-approval letter when submitting an offer. Sellers are instructing their agents to not present any offers submitted unless they have a pre-approval letter accompanying an offer. I always ask my clients to give me a pre-approval letter (or proof of funds letter if paying cash) before I start working with them. It is amazing how many potential clients I don't hear from again because they won't take the time to get the pre-approval letter. There are many reasons for this. My guess would be their debt-to-income ratio is not good enough to qualify for decent interest rates. Or, their just "Looky Loos" and not really ready to begin their REI journey. Regardless of their status I always recommend a great lender @andrew

@Andrew Postell to my clients that are looking to finance their investment properties. He has helped me with my rentals, primary residence, and many of my clients over the years. Here in Texas Andrew is a great person to have on your team.

Jim Cummings · Answer

@Paul Kubin. I think you find most prolific Buyers / Investors have Lines Of Credit / Financing arranged they can tap into with just a phone call. This entails doing the legwork upfront to establish relationships with Banker / Private Money Lenders that provide you this flexibility.

Jeff S. · Answer

“I have read that when you find an off-market deal you should sign it and THEN go find a lender.”

This business that the money will somehow appear when you find a great deal, off-market or not, is the rubbish pedaled by gurus, @Paul Kubin.  Where else do you ever try to buy anything before you know where the money will come from?  Nowhere, is my guess.

You should be looking for money as hard as you are looking for properties.  Private/hard money lenders are as different as fingerprints.  Some charge more, some less, can close quickly or slowly, multiple appraisals to none, experienced borrowers only or newbies, in-state/out-of-state limitations, fund at a high or low LTV, etc., etc., etc.

You’d be wise to talk to many lenders local to your properties.  Introduce yourself, get to know them, and develop a relationship.  Learn their lending criteria.  Then, maintain a stable you can pick and choose from as your properties, and their lending criteria fit.

Since private/hard money loans are based on both the specific property and on your qualifications, you won't get a pre-approval letter.  Instead, most hard money lenders will provide a generic proof-of-funds letter to show interest and obviously contingent on the deal meeting their lending criteria.  While not normally worth the paper it’s printed on, this will satisfy some agents and most sellers and can be used to get your foot in the door.

There are never any guarantees, but don’t make aggressive time-critical offers, Paul, unless you know you have access to the money to perform.

Eric Bilderback · Answer

Yup it helps to have resources.  If you are financially good to go it is a no brainer for a bank.  If you are not it helps to have a partner who is.  Or at least an investor/lender who has said that they would agree to lend if you found a good deal.

Paul Kubin · Answer

Hi, Joe -- thanks for your response.  I love being pre-approved because I can outpace those folks.  That said, I'm mostly wondering about off-market properties.  If, for instance, I find a motivated seller via a direct mail campaign (we are not working with agents) do buyers really sign a contract first, and THEN go find a lender?

Sign and THEN find a lender? Really?

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