Where Do You Find Earnest Money For Your Deals?
By Jason Lucchesi
The one thing I want to cover today is Earnest Money Deposits. I had an individual contact me about “Earnest Money Deposits”. The Investor asked me: “How do you get the funds for earnest money deposits if you don’t have those particular funds available to you right now or when you make an offer?”
I’ve been in this situation before folks, and some of you really might be in this very same position right now like when I first started in 2008. I was living on unemployment checks, so having earnest money deposit funds to invest was very much not an option for me at that time.
I want to share this information with you today about some of the things that I had to do in my business in the beginning to really make things work, and to really structure things in a way, especially on a purchase and sales agreement that would be in your favor as a new or struggling investor to really get things going.
NOTE: You don’t necessarily have to use your own personal funds for the earnest money deposit required for some of the offers you make on potential deals.
Structuring Deals Without Using Your Own Funds For Earnest Money Deposits
Earnest Money Ideas For Investing
First thing, that I want to let you know is if you do not have funds, the strongest recommendation that I can give to you would to start out wholesaling deals if you do not have the funds to invest or even the money for small earnest money deposits.
You need to have a buyers list to really make this work, and let me explain why. When you get a contract together, say it’s a rock solid deal. You have on your contract a deal for $30k and you know that you could quickly flip it to another investor, for let’s just say $45k.
Most sellers require an earnest money deposit or your agent may ask you to include earnest money to make your offer look serious.
Below are a couple options that you can do to solve the "earnest money dilema" once you get the deal under contract.
Collecting Earnest Money Upfront From Your Buyer
You could allow yourself, let’s just say three to five business days to get those earnest money deposit to that seller. Here is how…
What I typically do is I don’t give those funds to the seller. I’ll place those funds into my escrow account with my title company (company that will close the deal). Those funds get held in escrow until we actually close, okay? Why give myself those business days in order for me to setup this transaction properly?
Well what I’m doing is I’m having my end buyer give me what’s called a, “hard deposit.” A hard deposit means it’s pretty much non-refundable, the only time I give those funds back from a hard deposit standpoint is if something comes back bad during the closing process.
For example if I didn’t disclose something properly within my purchase and sales agreement, such as an inspection happens and there’s maybe termite damage, or I didn’t disclose something possibly with the foundation.
If that’s the case I’m going to give the funds back, and I highly encourage you to operate the same way within your business because you don’t want to get an end buyer, especially a cash investor upset over piddly amounts of money.
If I’m going to be at $45K on my second transaction where I’m doing an A to B, B to C transaction -- what’s going to happen is I’m going to go ahead and get my end buyers earnest money funds. Typically what I like to do to receive the funds upfront - especially on deals below a $100K - is I’m going to request $2K as a hard deposit. The main reason why I request that amount is it really gets that individual committed to buying your deal, okay? If you ask for $250, or even $500, they may not be fully committed. If you ask for $2K it gets a much higher committed person involved. I get the end buyers funds, so I can do a hard deposit with the escrow/title company.
NOTE: What you can do at that point is you could take those funds, you could put it in your title companies escrow account, and then at that instance have the title agent send the money from your escrow account to your seller. Your A to B transaction will consist of $500 in pledged earnest money. You could let your seller know by a phone call or email: “Hey, you can verify that the earnest money deposit has been put in place for our transaction with the title company.” They could verify that right then and there, and then you’re good to go from that standpoint.
Second Option That You Can Use Without Ever Using Your Own Funds
The second option out of the two that I prefer, and can be easily duplicated within any business. The one thing that I would tell you that you could do to add an addendum section on your purchase and sales agreement that “earnest money deposit funds will be deposited three business days prior to closing.” That allows you time to go ahead and find that end buyer.
Again, I strongly suggest that you put together your buyers list (for someone brand new, you ideally want to have a list of ten solid investors) before you get to that situation. You want to have your buyers list put into play because as soon as you get a deal you want to be able to get that deal quickly under contract with your end buyer. That’s what I recommend, that’s how I would recommend that you put the deal together.
Protecting Yourself From a Bad Apple of a Deal
Creative Real Estate Investing You also want to be able to have some outs. Make sure there’s some sort of an inspection out that you can have on your contract where the earnest money deposit will be refunded back to you if something does pop up - like something from the appraisal or inspection.
Those are the things that I would recommend that you definitely have in place to ensure that you are making a proper deal. The other thing that I would recommend here is by having the statement in there on your purchase and sales agreement that allows you to really be in a position that allows you to not use any of your own funds. It’s always wise to include a financing addendum to allow yourself time to secure funds.
The goal is to not use any of your own funds, and use your end buyer’s funds in a legal way. By you having them give you earnest money for that transaction, that’s essentially giving you “earnest money deposit” on the B to C, not the A to B. You will take those funds that you just received and give them to your A to B transaction.
Again, I’m not an attorney, I’m not giving you legal advice. I just wanted to share some quick notes explaining some of the things that I do, or have done when it comes to earnest money deposits.
About Jason Lucchesi
Jason Lucchesi is a real estate investor from the Indianapolis, IN area.
Jason's been in the real estate and mortgage business since 2002. He got out of the J.O.B. world back in 2008 to pursue his dream of becoming a full time real estate investor.
Since 2009 Jason's primary business was investing in short sale opportunities and has been involved in 151 closed short sales to where he either bought them or negotiated the short sales for other investors to where he gained a profit.
Jason Lucchesi, as of recent, in late 2010 he began investing in distressed notes and over the course of 12 months he's closed a little over 60 note deals.
Copyright Notice
Copyright 2002-2018 All Rights Reserved. Published with Permission of Author. No part of this publication may be copied or reprinted without the express written permission of the Author and/or REIClub.com.
https://reiclub.com/articles/find-earnest-money-for-deals
Saturday, October 6, 2018
Monday, October 1, 2018
10 Easy Tips for Finding Investment Properties
10 Easy Tips for Finding Investment Properties
by William Bronchick
TIPS For Finding Real Estate Investing Deals
Finding real estate investment properties isn’t always easy if you are doing the same old thing – you have to increase your odds by looking in places others aren’t looking. Who is more likely to get a cheap fixer-upper, an investor that looks through the MLS listings and calls it a day, or the one that uses TEN resources?
Here are ten tips for finding real estate investment properties.
1. Use the Internet. There are hundreds of websites that post properties for sale by owner or for rent by owner (or both). The obvious one is Craigslist.org, but look for some of the lesser known websites for finding deals. Here is one of my investing quick tip videos on "How to Analyze a Deal in 30 Seconds or Less".
2. Drive Around Looking for “For Sale By Owner” Signs. Owners often test the market with a sign before listing with a real estate broker. Call every FSBO sign you see, and find out the name of the owner from public records and send mailers, too.
3. Find Old “For Rent” Ads. Call if they are a few weeks old (you can find older newspapers at your local library, or start on Craigslist for rent from the oldest date forward). Landlords are often ready to sell, especially if the haven’t yet rented the units out. Maybe they had a recent bad experience with an eviction that could motivate them to sell?
4. Find Abandoned Properties. That’s a pretty clear sign that the owner doesn’t want to deal with the property. He or she might sell cheap. Engage some “bird dogs” to drive around neighborhoods looking for properties that look abandoned – boarded up, grass grown high, and/or in disrepair. Look up the owner’s name on the county tax assessor’s website and mail them letters and postcards.
5. Old FSBO ads. If you call on two-month-old “For sale By Owner” ads, and they haven’t sold, they may be ready to deal. Owners often give up the effort, but still would love to sell. Help them out!
6. Offer Someone a Finder’s Fee. There are people that always seem to hear about the good deals. Have such people coming to you with potential leads (Tip: pay by the lead, not by the deal that is closed, otherwise people will stop referring deals to you quickly).
7. Talk to Bankers. You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate broker. Small, local, commercial banks are your best bet. They may also be willing to sell you a defaulted mortgage, which you can use to either negotiate a deed in lieu of foreclosure from the owner of the property or foreclose it.
8. Eviction Notices. If you can get the information at the local courthouse, it can be useful. A landlord who just went through the process of evicting tenants is a likely seller, particularly if he or she did the eviction without a lawyer (a sign that they take it personally).
EASY TIPS For Finding Real Estate Investment Deals
9. Setup a Blog. Real Estate Blogs attract people who search for help, and they will find you with the right “keywords.” Something as generic as “sell your house fast Dallas” might not get you to the top of the search engines, but listing surrounding cities and suburb names are more targeted to someone who searches those words. You can setup as many free blogs as you like using WordPress.com and Blogspot.com.
10. Talk. Let people know you are looking and sometimes the properties will come to you. There are a lot of owners out there who want to sell, but haven’t yet listed their property. Get to them before a broker gets to them to list their property. Everyone within your sphere of personal or business influence should know what business you are in, and they should think of your first when they find a motivated seller.
So there you have TEN more ways of finding investments properties. Now, go get ’em!
About William Bronchick
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker.
by William Bronchick
TIPS For Finding Real Estate Investing Deals
Finding real estate investment properties isn’t always easy if you are doing the same old thing – you have to increase your odds by looking in places others aren’t looking. Who is more likely to get a cheap fixer-upper, an investor that looks through the MLS listings and calls it a day, or the one that uses TEN resources?
Here are ten tips for finding real estate investment properties.
1. Use the Internet. There are hundreds of websites that post properties for sale by owner or for rent by owner (or both). The obvious one is Craigslist.org, but look for some of the lesser known websites for finding deals. Here is one of my investing quick tip videos on "How to Analyze a Deal in 30 Seconds or Less".
2. Drive Around Looking for “For Sale By Owner” Signs. Owners often test the market with a sign before listing with a real estate broker. Call every FSBO sign you see, and find out the name of the owner from public records and send mailers, too.
3. Find Old “For Rent” Ads. Call if they are a few weeks old (you can find older newspapers at your local library, or start on Craigslist for rent from the oldest date forward). Landlords are often ready to sell, especially if the haven’t yet rented the units out. Maybe they had a recent bad experience with an eviction that could motivate them to sell?
4. Find Abandoned Properties. That’s a pretty clear sign that the owner doesn’t want to deal with the property. He or she might sell cheap. Engage some “bird dogs” to drive around neighborhoods looking for properties that look abandoned – boarded up, grass grown high, and/or in disrepair. Look up the owner’s name on the county tax assessor’s website and mail them letters and postcards.
5. Old FSBO ads. If you call on two-month-old “For sale By Owner” ads, and they haven’t sold, they may be ready to deal. Owners often give up the effort, but still would love to sell. Help them out!
6. Offer Someone a Finder’s Fee. There are people that always seem to hear about the good deals. Have such people coming to you with potential leads (Tip: pay by the lead, not by the deal that is closed, otherwise people will stop referring deals to you quickly).
7. Talk to Bankers. You might get a foreclosed-on investment property cheaper if you buy it before they list it with a real estate broker. Small, local, commercial banks are your best bet. They may also be willing to sell you a defaulted mortgage, which you can use to either negotiate a deed in lieu of foreclosure from the owner of the property or foreclose it.
8. Eviction Notices. If you can get the information at the local courthouse, it can be useful. A landlord who just went through the process of evicting tenants is a likely seller, particularly if he or she did the eviction without a lawyer (a sign that they take it personally).
EASY TIPS For Finding Real Estate Investment Deals
9. Setup a Blog. Real Estate Blogs attract people who search for help, and they will find you with the right “keywords.” Something as generic as “sell your house fast Dallas” might not get you to the top of the search engines, but listing surrounding cities and suburb names are more targeted to someone who searches those words. You can setup as many free blogs as you like using WordPress.com and Blogspot.com.
10. Talk. Let people know you are looking and sometimes the properties will come to you. There are a lot of owners out there who want to sell, but haven’t yet listed their property. Get to them before a broker gets to them to list their property. Everyone within your sphere of personal or business influence should know what business you are in, and they should think of your first when they find a motivated seller.
So there you have TEN more ways of finding investments properties. Now, go get ’em!
About William Bronchick
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker.
Subscribe to:
Posts (Atom)