Watch Out For These Wholesaling Red Flags! | Cash Buyer Financing

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If you’re new to my channel my name is RJ Bates III. Myself and my partner Cassi DeHaas are the founders of Titanium Investments.

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Chapters

• 0:00 Introduction to Wholesaling Red Flags
• 1:04 Understanding "Cash" Buyer Claims
• 3:31 Vetting Private Money Lenders
• 6:00 Hard Money Loan Considerations
• 10:34 Securing Earnest Money Deposits
• 11:54 Keys to Closing More Deals

Transcript

Speaker 1: 0:06

Welcome to Wholesaling Red Flags, a new series where we're going to be breaking down things that come up during wholesale transactions. That should be a red flag to make you question whether or not the deal is going to make it to the closing table where you end up with money in your bank account. Today we're specifically going to be talking about your cash buyers, financing or how they're paying for that deal. Now, when you're doing dispositions and you're vetting out your cash buyers which is very important that when you are talking to the cash buyers, you're actually vetting them out and seeing like what types of properties are you looking for? How many deals have you previously done? How will you be financing this deal? It's very important that you ask that. Now there's going to be a couple of different responses that you get. And listen, these are not the only responses that you can get, but these are going to be the most common ones. One, cash. Two, private money lender. Three, hard money lender. Now let's talk about number one, cash. When they say that there's a lot of different variations to what that could mean, quite frankly, if you say cash, that could mean hard money lender, because technically that is a cash offer, right? So a lot of times, an end buyer will say, hey, I'm going to be paying cash, but really they're going to be taking out a hard money loan. It could also mean they're using someone else's money a private money loan, that's okay or it could mean it's their own cash. The way that you want to navigate this is ask that buyer okay, so if you're going to be paying cash for this and we get to the point where we want to send an assignment, ask them can you just send me proof of funds you said you're going to be paying cash for this and before I take this, you know all my marketing down and say that the deal is assigned and send an assignment over to you. Can you send me over proof of funds showing that you have the capabilities of financing this? Because one of the things that can also happen with I'm going to be paying cash is that the cash that they're going to be using could be.

Speaker 1: 2:20

Is that the cash that they're going to be using could be contingent upon another property selling. If that's the case, you want to know that up front. You want to know all of this information so you can keep tabs on making sure that that other property that needs to close stays on course for closing on time. So anytime someone says cash, you have proof of funds. If they don't have the proof of funds because it's coming from somewhere else, verify that information. Make sure, hey, is this property already sold? What's the closing date on it? What I like to do specifically is, if it's like a property that they're selling and it's listed, give yourself market as a favorite on Zillow and it gives you email notifications if the status of that property were to change, whether or not it goes from pending to close or pending to back on market. This is important for you to know because if it goes back on market, you can immediately call your cash buyer and say, hey, I saw that the it goes back on market. You can immediately call your cash buyer and say, hey, I saw that the property went back on market.

Speaker 1: 3:27

Do you have another way to finance this deal? Now, I was talking about a private money lender. This is going to be very common. It's readily taught all across our industry. Right, use other people's money. There's a lot of people out there that are raising the cash. That's okay. Ask them. Can you provide me with a legitimate proof of funds that you already have identified this private money lender and then they have the funds available for this deal.

Speaker 1: 3:59

One of the reasons why you want to do that is because there are education programs out there that teach flippers. Landlords get a property under contract, then raise the capital. This can become a problem for you, specifically if your seller is on a very specific timeline. The reason why I say this is because we ran across this a lot, specifically when we first started wholesaling, where we would assign a deal to the end buyer they are going to use private money and then they had to go raise those funds and if they didn't do it in time, they would just ask for an extension. Like it wasn't a big deal. However, it was a big deal for our sellers, and so there was a lot of times where there was stressful moments early on in our wholesaling career where it was like, oh, this is what they're supposed to do. They're using other people's money, they're going to go raise the funds.

Speaker 1: 5:00

If that's the case, you still can allow them to do that, but you need to stay in communication with them constant communication. How is it going? Are you going to be able to raise the funds? Do you have any leading candidates. Are you going to be splitting this up where it's only one private money lender or they're going to be two or three? One of the other things that you can do is send over an assignment contingent upon them being able to raise the funds. So you can still do marketing, and if another buyer comes along that has more solid financing, then you can assign it to them and they get booted out of the deal unless they have the funds already raised. They have the funds already raised. Now it's essentially doing more dispositions, but your options are you either tell this buyer I'm not going to do the deal with you and continue doing dispositions, or lock them in, let them go do their process and continue doing dispositions. The last option is a hard money loan. Now this one takes quite a bit of communication during the transaction coordination process.

Speaker 1: 6:07

If a buyer says I'm going to use a hard money lender one, if it's in an area in which you are knowledgeable of the hard money lenders, hopefully it's one that you've heard of before. Right here in Dallas, fort Worth, texas, we're very familiar with Wildcat Lending, black Label Capital. In the past there was Easy Street Capital, there was Streamline Funding. There's a lot of hard money lenders in this metro area so we're familiar with those. Now, if they don't know which hard money lender, that is a red flag. If they say they're going to use hard money lender and they're not already pre-approved and they don't know which one they're going to use, I would ask them I need you to go line up your financing before we can assign this deal over to you. If they say they're going to use a hard money lender and they say, yeah, rj, I'm going to use Wildcat Lending. Okay, very good, let's see your pre-approval letter. We get the pre-approval letter, we send over the assignment.

Speaker 1: 7:07

Then, during transaction coordination, rtc is going to stay in communication with the title company, making sure that the title company is receiving all of the necessary communication from the hard money lender. That is the vital piece that most wholesalers miss out on. They'll do the email communication between themselves, title and the seller themselves, title and the buyer but not like this hidden, secret communication between ourselves and the title company verifying that the lender is doing everything that needs to happen. The other line of communication needs to take places between you and the buyer. A lot of times when there's a hard money loan, there needs to be an appraisal done on the property or a BPO. The majority of hard money lenders are going to require an appraisal. Also, will there need to be a survey done? Some hard money lenders will require a survey to be done if there's not one available from the seller. So you need to ask the buyer does there need to be an appraisal? Does there need to be a survey? What else needs to be done so your lender can send the docs over to the title company? The communication between you and your TC and the title company. Have you received the closing documents from the lender?

Speaker 1: 8:32

One of the most common causes of an extension of a closing is that the lender doesn't give the title company enough time. They don't give them the lending docs and then give the title company enough time to prepare their closing docs in time. So it's very important that you press that. And a lot of times it seems like we're almost kind of being jerks where it's like we have a closing on Friday and we're on them on Monday Like, hey, have you sent over the closing docs? You find out that information from the title company. Then also you could just place that phone call Like hey, have you done deals with this hard money lender. Do you know what their process is normally like? Do you know what their timeline's like? This is also why it's very important for you to use the same title companies over and over and over again. See, we've used Dana Draper since 2014 here in Dallas, texas, so I have a great relationship with her. We've also used Hannah Jackson Great relationship. It's easy for us to just be like hey, what's your gauge on the temperature of this closing in time? Are you feeling good? Is the communication up to date with the hard money lender? So it's very, very important that you keep that line of communication from the time the assignment is done all the way up until the deal is closed and funded. Hard money lenders are also notorious for sending out the wires in bulk at the end of the day, so it's also important to make sure that that wire gets sent before the wire cutoff time on whatever the closing day is.

Speaker 1: 10:20

Ultimately, with all of these different financing options, one of the most important things that you do is, every time you send an assignment, your deal is not officially assigned and sold until earnest money is deposited. This is very important because there's times where someone will say I'm going to use a private money lender or I'm going to use a hard money lender and then you send over the assignment and they'll take 48, 72 hours to deposit the earnest money and in the meantime they're trying to figure out how they're going to fund this deal. And if they can't figure that out in the 48 or 72 hours, then it's well, it's no harm, no foul, right? I didn't deposit my earnest money. You should have kept trying to sell it to someone else, and that's absolutely what you should do as a wholesaler. You keep marketing that deal, you keep pushing it until earnest money is deposited and more often than not it should be non-refundable earnest money.

Speaker 1: 11:22

Now there are buyers out there that require inspection periods and they will not do their inspection until after they have a signed agreement. Now, if these are regular buyers and you're building that relationship and you understand that's part of their process, there's nothing wrong with allowing that. But the majority of buyers, you could tell them please do your due diligence up front. Once you sign the assignment, we'll give you 24 hours to deposit non-refundable earnest money. And then oh, by the way, how are you financing this deal? Can I see the proof of funds? Can I see the pre-approval letter and then stay on top of that communication throughout the process. So when it comes to your end buyers and their financing, this is a massive thing that can absolutely crush your deals or it can lead to you closing more deals than your competition. Let me know if I left something out in the comments. Show me some love, give me a like and we'll see you guys on the next episode.