All Forum Posts by: Rob Green

I have seen this done before on larger deals ($5M+) and in my medical opinion, even if it's legal, it often isn't honest. :-)

The entire reason to provide a proof of funds to a seller is to credibly and authentically demonstrate your intrinsic ability to perform the financial obligations of the contract. By using an interim "guarantee" you are placating the seller in the hopes of securing financing in time to get final financing done, which may or may not happen. Surely this puts the seller in a bind should the end financing not come through. Usually people lawyer up at that point regarding damages, fraud etc. Please note, that I AM NOT saying that any of this is your intent, I'm only relating what I've personally seen occur with deals I've been involved in (note: I've never been the one to use a proof of funds letter in any deal).

In times past, when I've seen people pay to use a proof of funds letter, its use came with the stipulation that if the funds actually needed to be drawn down on, they would be used at hard rates over very limited terms. 

Then there is the issue of how valid the letter for proof of funds is. I had one developer try to use a proof of funds letter from the Bank of Indonesia for somewhere in the neighborhood of $500M. That didn't end well.

Over all, I'd suggest you get an attorney's opinion. My medical opinion, being what it is, is not defensible in court. But my personal experience is such that if someone ever provides me with a proof of funds letter, I'm checking with the contact at the bank who gave the letter, and their supervisor as well to ensure that the buyer actually has the specific funds mentioned in the letter, under their complete and absolute control, and that those funds have a healthy degree of seasoning before I accept it as valid.

Best wishes,

Rob

Bienvenue a "BiggerPockets"! What part of France are you in?

I have my own opinions as to whether or not wholesaling should be legal or not. However, it seems to me that one fairly simple way to avoid the whole issue of brokering a sale is to sell the entity in which the contract is held. If the contract is the sole asset of the entity, selling the ownership/controlling member interest of the entity would bypass the problematic issues of selling a contract. 

Has anyone had any experience (positive or negative) with selling the entity holding the contract instead of selling the rights in the contract itself?

I look forward to all of your replies.

Hi Dave!

Welcome to BP. I'm also in the Provo area and would be happy to connect with you and share any insights that I have about real estate. With all the construction skills you've got, it sounds like you're off to a good start. And, I'd love to have a good construction expert to call on for ideas. Let me know if you'd like to get lunch sometime and we can share ideas with each other.

Kind regards,

Rob Green 

I agree with the previous suggestion of using your capital as a short term private lender for a couple of reasons. First, you'll get to analyze LOTS of deals that people bring to you for funding. This way, you'll start to get a feel for the market and what deals are possible for you when you do invest in your own properties. Second, you'll turn your money much quicker. If you put out $50k @ 6% 4 times per year, you'll get $12k per year. Often, it's the speed of money that makes the biggest difference.

Good luck!

Most leases specify that the landlord has the right to enter the property upon 24 hrs advanced written notice. In the event that the tenant cannot be contacted, the landlord may still enter the property. What does your lease say?

Robert,

I live in Utah and can tell you from a lot of personal experience that 100% earnest money is not normal. Even when I was helping clients acquire  $12M development properties owned by large corporations in a highly competitive bidding process , only 10% earnest money was required. Sometimes, the earnest money would go "hard" or non-refundable by a certain point, but never was 100% required.

In my experience, it is usually inexperienced individuals who are getting bad advice from "friends" who make such requests. I'd also use this as a red flag opportunity to ask the seller why they are asking you to do something that is so far out of standard business practices. Perhaps by finding the intention behind their request, you can propose a better solution that is more mutually beneficial.

Good luck!

@Joe Fairless: Thanks for sharing the particulars of this deal. I'd love to hear how you addressed the following issues in your situation.

When I've been involved in deals similar to this in the past, raising funds was an....interesting experience. Some of the investors who looked at the deal with were very laid back when it came to the format of the offering; a fairly comprehensive property write-up, appraisals, comps etc and they were good. 

Other investors wouldn't even look at the opportunity unless it was in a PPM (Private Placement Memorandum) with any possible SEC disclosures AND the PPM had to have been "blessed" by a securities attorney who had been personally anointed by the SEC.

Which format did you follow? And, how did you address SEC and accredited investor issues?

If anyone else would like to chime in on this, I'd love to hear your opinions.

Thanks in advance for your replies!

@Adam Schneider, Thanks for this post. I particularly liked your positioning of "We buy homes at a discount so there's immediate equity to mitigate the risk of a drop in the market". 

In your experience, what are the 3 top objections you see private money lenders give people who are looking to borrow funds for a deal?  

It's possible that the tenants may have a case for what is called "constructive eviction", meaning that the property is not suitable for healthy habitation. Usually, the lease agreement will specify what will happen under these types of circumstances.

You might find it helpful to familiarize yourself with the Utah Fit Premises Act: http://le.utah.gov/xcode/Title57/Chapter22/57-22.h...

Additionally, I'd suggest you contact http://www.thegoodlandlord.net/