When I finance with private lender, can I say it's a cash offer?

Question

I am under contract with a wholesaler, and the contract says the assignee will be paying cash.

I do have enough cash. However, I would rather use private lenders' money and I have it ready, which are from two close friends. Will escrow have problems with I use private lenders' money? If not, can my friends wire money directly into my account, and I can use that money to pay for the property?

One friend actually suggested that I wire money directly into my account. However, the other friend (who is a loan broker) said it's better to do a note, so that I can refinance as a rate change in 2 months.

Bobby Feinman · Answer

@Lilly Fang

I was a builder for almost 20 years before becoming a lender. A little trick that we used when we wrote offers was the following verbiage on the financing:

"Cash or existing credit line"

It's not a lie and it sounds pretty much the same as cash.

Jeff S. · Answer

Strictly speaking, a cash offer means you have the cash in the bank and are ready to close, @Lilly Fang. To the seller, it implies there is no chance a lender will pull out at the last minute and jeopardize the deal.

Realistically, most wholesale deals are negotiated well in advance, so all parties know where the money is coming from. You normally don’t have to play this game or worry. Escrow will do what they are told, so long as the buyer and seller agree.

Even for a “standard” sale, virtually every rehabber we know will make a cash offer with a quick, five or ten-day close. It encourages a hesitant seller, but their agent will know what’s going on anyway because you or your agent had a prior conversation with them. So long as he or she believes your lender will perform, their agent will assuage the seller. We’ve loaned on many properties made with a cash offer and never had a deal fall through as a result.

A side issue for you to consider is how you’re going to borrow money from two different parties. In most states, you can’t simply have two lenders on one loan without a security registration. (CA, if that’s your state, does allow it under certain terms). Don’t be free and loose with your friend’s money. Make sure the loan is professionally prepared.

Ian Walsh · Answer

I have seen clients just tell the wholesaler that they will probably use their own cash but might finance and you can do it either way. They usually are fine with that.

Erik Estrada · Answer

No this should not be an issue. It is fairly common to write an all cash offer using a hard money loan to finance the purchase.

But as Kodie stated, you will need to be cautious on how the offer is written and make sure you did a thorough job of explaining the deal to your hard money lender so they do not back out and you lose your EMD.

Kodie Talley · Answer

When the contract says the assignee is paying cash, from my experience, it waives any contingencies that come with a financed offer. So if lending falls through, you have to pay cash or waive your right to getting your escrow deposit back.

Lilly Fang · Answer

Thank you, everyone. I am learning something every day. I will write "cash or existing credit line" next time.

One of the two friends is actually my mortgage broker. She knows us so well that she will personally lend to me without any collateral. She will construct the loan with no point, no fee. The other friend just planned to wire money to me directly without any note, but I will ask the mortgage broker friend to do it right so that I can re-finance easily.

The worst scenario is if the seller or escrow really requires me to use my own cash, I will use my HELOC and cash to buy it. I just don't like to see the number in my account tank.

When I finance with private lender, can I say it's a cash offer?

When I finance with private lender, can I say it's a cash offer?

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