All Forum Posts by: David MacGown

Corey,

You will not be forced to buy the house but chances are you can say goodbye to your earnest money deposit...if you are dealing with a realtor you should be prepared to buy the house anyway so that you don't burn bridges in your area. (line up a hard money lender or private money before hand) You can also request an extension, just offer them (the sellers) a consession for doing so.

The best way to avoid this problem altogether is to have a good database of qualified cash investors lined up. This way you will know what kind of properties and neighborhoods are in demand...you can't do much wrong when you buy in a hot neighborhood but just to be on the safe side avoid very old homes, 2br's, houses on alleys, close to commercial properties, very small houses (below 850 sf) Know what is a must have in your geographical area.
i.e. basements for Michigan homes and Block frames for Florida homes.

One more thing...my FICO score has never had any relevance whatsoever on my offers. No body asks...some HML's will if you ask them to write you a prequalification letter
but with private lenders it never comes up.

If you are new at this I recommend you NOT make all cash offers unless you have private lenders lined up because they will request proof of funds and will want to see a higher EMD

Instead make your offers contingent upon financing (the ONLY contingency you should ever put in the contract by the way.) And submit a prequalification letter from your hard money lender, transactional funder, or private lender
and you can get away with lower EMD's. Yes fewer offer will be accepted but you gotta start somewhere...

As soon as yopu possibly can raise private money so you can become a "cash buyer" remember just because your a cash buyer doesn't mean it's gotta be your cash. But when your making cash offers you definitely have more leverage over the others.

While it is true there is a stong correlation with the size of the EMD and the flakeout factor -the Realtor knows this... they will always want more while you will put down less. You must have the investor mentality when buying - getting into the deal with the least amount of cash as possible. If you are wholesaling you will have the Realtor's mentality of getting more E.M. from your buyer - that's how you will know who is serious.

I do believe it doesn't have as much to do with the banks requirements as it is the Realtor looking for the strongest buyer. So...One way of getting the Realtor on your side is by giving them all the commission by not bringing in another Realtor. Some people have the faulty missconception that they need a buyers agen to work with. Wrong! Use the REO listing agent and no one else.

I never almost ever put more than 2% of "my offer" (not the ARV) down for EMD. So If it is the banks wanting more then how long have they been on the market before you make an offer on them? Banks don't start to get motivated and start dropping the asking price until after 90 days on the market so your going to have a tough time of it if your making offers the minute they become available.

One last thing...If your wholesaling it doesn't have to be your money anyway. During the inspection, minutes after your property inspector has left call your serious buyers to come out and take a look and tell them to bring their check book because the first decent deposit gets the property. So what if there is more in repairs than expected based on your offer to the bank, due the due dilligence later and ask your investors what they would pay for the house - it's their opinion of the value that matters. It's their opinion of the repair costs that matter. So now your offer on a property where the ARV is $400,000 is $200,000 but you need to renegotiate at $180,000 based on the inspection. Put $4,000 down for an EMD to be paid after the inspection period and collect $8,000 from your buyer. Your buyer is the one footing the EMD and EVEN if he flakes out on the deal you still made 4K. - the inspection fees.

Illena I woldn't say it's easier...it just so happens that two of the components that make a property 'cheap' is vacant and ugly and you will find exactly that from the vacant and boarded lists. You will always have a title search done before purchasing (and virtually none will have a clear title) but not until you feel you have a deal first...The title in these cases can be messy this is why I would not recommending moving forward until you have a good settlement attourney to work with first AND they can give you the heads up foreclosure laws and condemned property laws as Jawsette made a very good point, it may be illegal (entering a condemned property) but a good attourney may know of legal loopholes so you still may be able to purchase these kind of properties for pennies on the dollar.

Hi Greg!

I know nothing about this particular company but transactional funding is very useful for wholesalers in areas where title companies will not perform simultaneous closings where your buyer comes to the closing table with the funds...but you must have a buyer lined up in advance just as you were to have a simultaneous closing. Many investors are using private money now as hard money is a dying breed in this credit crunch era but Trans funding is a valuable alternative for the wholesaler.

Hi Robert,

Some code enforcement offices carry vacant and boarded lists or condemned property lists which are available for purchase...their not always easy to find but ask around, sometimes the lists can be free online if you go to the city government page.

I used the yellow letter aproach to send to all the property owners but you will need to find out where the tax bill is being sent to first and many letters will be returned as can't be found...don't throw these letters away! This is where so many investors give up...hire a skip tracer (findtheseller.com) and send them a certified letter. From what I understand the response rate is much higher with the yellow letter than postcards.

Great deals can be found this way especially unlisted properties where the owners live out of state...some owners may be heirs but the down side is that there may be liens and most likely will not have a clean title...This is why I like REO's So if you go this route I suggest you have a real estate attourney on your team to help you close these deals, it makes life so much easier when messy titles are involved.

I agree looking for the house first is a common rookie mistake, it's putting the horse before the carriage. I believe that mentality comes from the Guru's "Find a good deal and the money will folow" While building my buyers list I will call the "we buy houses" bandit signs in the neighborhoods I'm interested in and find that many have yet to do their first deal!
We are in a new era in which you do not need to be advertising for motivated sellers because their a dime a dozen now adays. Save your money and build a buyers list first so you know what to look for and where...you must know what's in demand in your marketplace before you begin to look.

...one more thing, after you have done this build a team before you look for houses, you will make offers more confidently when you have a team of professionals on your side. And after you find out what neighborhoods are in most demand from your newly built buyers list research the neighborhoods and know those neighborhoods like the back of your hand. The second common rookie mistake is finding team members AFTER they have a hot deal.

Ramon: don't let the inspection fee scare you. If you are paying a fee for every property you make an offer on you are offering way too much...you should be making your offfers low enough (MLS) that only1 in 20-30 will be accepted. I like REO's because chances are the bank already has an idea of the repair costs as they sent an inspector out to the property before listing it. Because it's standard in most contracts to have an inspection period I make my offers based on the photo and the asking price from the ARV. For example: I look for a minimum of a 20% discount from the arv ARV=$100,000 asking price=$80,000 based on this spread I make my offer with a 10% repair cost from the arv repair costs=%10,000 so if I'm wholesaling the property my offer would be $50,000 or 50% of the arv. If the arv is $100,000 and the asking price is $75,000 based on that spread my offer would be based on a 15% repair cost from the arv and so on...Now when the inspector inspects the property go out and meet with him, it's very educational. If based on the inspection the repair costs are higher than anticipated don't worry just tell the bank based on the revised inspection the numbers don't work for you and throw out a new offer to them.

As so many have stated, you cannot assign a contract with a bank but that doesn't mean it can't be wholesaled. Best way to do it is to have a simultaneous closing...look for an investor friendly title company and a hard money lender that is used often in your market and explain what you would like to do and ask them to help you accomplish it...Everyone likes to feel like an expert, they would happy to show you how it is done.

First of all you should know what investors are paying for properties in your market place...what % of a discount are they looking for from the ARV. The 70 % formula is just a general rule of thumb and is based on selling to cash buyers, it does not take into account the cost of hard money or the commision to sell the property if using a top gun realtor (which you should) so...to take into consideration some of your buyers will be using hard money to finance the purchase and they will be selling the finished product through a realtor -make you offers at 65% of the ARV rather than the standard 70%. Calculating the ARV in today's market is another article for another day.