Pre approval or deal first?

Question

Greetings! I'm interested in doing my first fix and flip and have been looking at hard money loans and portfolio loans. I've been doing some reading on the forums and I'm a bit confused about whether I should be getting a pre approval letter or find a deal first. Some say to get pre approved, others say the pre approval needs to be for a specific property or it is useless, and others are saying you need to have a deal to present to the lender for HML and Portfolio.

The market I'm looking to purchase in (Los Angeles) I hear properties are getting many bids and many buyers are making offers on multiple properties. I do have specific properties I am interested in, but they may not pan out if my bids are too low.

What is the best way to go about this?

Mags S. · Answer

If multiple offers are common in your area, cash is king.  Otherwise, get a pre-approval (which often is not a true pre-approval but a qualification). You don't need a property in mind - it'll just say TBD for address. At minimum they will do a credit check and let you know your maximum purchase price and minimum down payment and loan type. If you need the services of a real estate agent, any worth their salt should require a pre-approval at minimum to even take you out to see houses...unless you already have established a relationship.  This is how it works in my locale. Time is money

Xia Ji · Answer

Thank you for all the responses! I will try to get a pre approval first.

Ben Stoodley · Answer

@Xia Ji this is a common question and as you can see from the responses, it is fairly subjective. As a new investor, you have no "credibility" in the investing industry. This is important when the Seller is reviewing multiple offers - which ALL godo investment properties will receive. Then, the agent/Seller will prefer the experienced "real" investors over the newbies. POF and/or LOI letters will certainly help here - especially if your name or your company name isn't a known and trusted investor.

HML don't do much preapproving on the borrower - as most of us are asset based lenders. This means we prefer to have a deal under contract before pre approving - but are happy to do either method. Some things you may want to prepare would be: your purchase price range, your location range, financial system for down payment & holding costs, experience with investing, partners you plan to bring on, etc. Theses things will be of interest to any HML interested in starting this relationship with you. The more prepared and organized you are, the better!

Feel free to reach out for any additional help.

Good luck!

George Taylor · Answer

As a HML we provide our borrowers with POF letters. Same as a pre approval and you would already be in the system. You can be given a generalized one then when you have an accepting bid they should be able to change the POF to be property specufic. On our end, having a POF first is better. We do not lend in CA, though, so that is coming just from our process and preferred methods.

Chris T. · Answer

@Xia Ji

You need pre-approval first. The HML needs to make sure you qualify, plus you have the experience to execute the plan.

Plus how would you make a competitive offer without a pre-approval letter?

If I am the seller with multiple offers, I would throw out the ones without any POF or pre-approval letters first.

Nathan Patterson · Answer

I think it comes down to your market, if your in a market where a deal hits the market and is scooped quickly.  Then, I feel, having pre-approval would help the sellers go with you since your a stepped ahead of some other buyers.  Unless you are doing HML, then finding the deal is the best bet, but I would say start a relationship with an HML so when a deal comes along you can jump quickly.

Lee Ripma · Answer

If you're doing hard money you can wait until you have the property under contract but you should reach out to a few to get a relationship going with them and understand their lending criteria!