What if my offer is accepted and I do not have financing secured?

Question

I was listening to bigger pockets podcast the other week and I can’t remember which episode it was, but the guest talked about how when he got started, he just started submitting offers on everything on the market. My question is what happens if the seller accepts your offer and you do not have adequate funds. I know this is where your network and syndication is key, but what happens if you just can’t line up the investors to make the deal happen?

Theo Hicks · Answer

You want to have an idea of how much financing you qualify before pursuing deals. For example, if I can only qualify for $500,000 comfortably, I wouldn't put a $5 million deal under contract. Not only will you most likely lose money, but you will lose credibility with the parties involved (broker, lender, owner, etc.) by not closing on the deal.

Russell Brazil · Answer

Do not enter into contracts you can not fulfill. It is Fraud By Inducement.

Patrick Shea · Answer

@Alec McGinn, that is a great question. Most of the time you will need a earnest money deposit, which can be anywhere from $1000 to $10,000 (I did that for my last cash offer). If you structure the offer correctly (my agent usually does it) there should be a financing contingency, so you should be able to get all your earnest money back if your financing falls through.

Is it better to get your financing set up before hand, yeah it makes your offer stronger but it isn't absolutely necessary. Now if it is a good enough deal and you can explain (in writing normally) how it is a good deal, you may be able to reach out to family, friends, bigger pockets market place, etc to find private money. Or you can start calling banks, if you have a W2 job it maybe easier to get financing on your first few properties with conventional loans. Finding the money seems daunting but there are a lot of avenues, just have to swallow your pride and be ready for nos.

Hope this helps

Jack Medford · Answer

I agree with what @Theo Hicks said, which is that you should qualify for financing before pursuing deals. Not only will this give you an idea of what you can afford, but it will also provide you with credibility.

Selling agents expect to see proof of funds, or at least some sort of comfort letter from a bank stating that you are in fact lendable. You are not likely to get any accepted offers without some way of showing proof of financing. If you somehow do, just make sure you have the financing contingency as @Patrick Shea suggested.

Matt P. · Answer

@Alec McGinn every time I have had a real estate agent send in offers for me they make me send a bank statement showing the funds. I doubt you can find someone to just throw offers out willy nilly like that in this market. The podcasts are great but sometimes I just shake my head at some of the stuff they say on it lol.

Alec McGinn · Answer

@Jerry Padilla I want to invest in some type of multi family whether it be a duplex or greater, but I can’t decide whether to stay local or go out of state. Syndication is something I would ultimately want to get into, but I need to establish credibility as an investor first. Where do you invest?

Jerry Padilla · Answer

@Alec McGinn

Why not start a little easier with purchasing a SFR or MFR on your own to get some experience being an investor?

You only need to put 15% down with conventional on a SFR investment property.

Alec McGinn · Answer

@Jerry Padilla nothing is holding me back I am just assessing all available options out there for real estate and I have trouble understanding how you bring a deal to the table and rally investors to join on a syndication. How do you attract investors with a deal if you can’t put an offer out there to show what the seller is actually willing to accept? My head is spinning because I want to buy my first rental property by the end of this year or beginning of next year and I cannot decide which route I want to go with.

Jerry Padilla · Answer

@Alec McGinn

As others have said, it is always best to get your financing lined up, so you know how much you can qualify for.

I don’t think any agent is going to take you seriously without getting pre-qualified first.

What is holding you back from getting pre-qualifies for a loan?

Jim S. · Answer

@Alec McGinn In my opinion, it's really best for all parties involved if you have the necessary funds/financing available so that if you aren't able to find a buyer in time, you can just close on the contract yourself and then look for a buyer.  As @Russell Brazil said, if you can't fulfill the contract it's fraud.  I know that this is a really grey area and there are a ton of posts here on the forums regarding what is legal and moral when it comes to wholesaling, assigning contracts, double closings, etc.  If you haven't already done so, you would definitely be doing yourself a favor by reading these posts and also googling to find out what the laws regarding wholesaling are in your state.  It's a lot more complicated than the gurus would have you believe.

Under no circumstances should you put escape clauses in the contract that lets you out of the deal just because you can't find a buyer or find financing.  If you do that you are doing a major disservice to the seller and giving the wholesaling business a bad name.

I've literally spent hours reading on this topic and I'm really convinced that the best option (both legally and morally) is to just take title yourself and then find a buyer.

Good luck with whatever path you choose to pursue!

What if my offer is accepted and I do not have financing secured?

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