Posted by Kristine-CA on October 21, 2003 at 02:12:05:
Kfarzin: I’m working in Central CA. I use an offer to purchase real estate contract. I used to use the CA Realtor Board contract. Now I use a very simple contract that suits my purposes better. No REOs for me recently–although I used to make quite a few offers on them. I get a lot of preforeclosure calls but rarely end up working with them. Mostly I work with abandoned/vacant properties, often with probate and/or title issues.
I’m working with a seller/RE agent who’s willing to sell a duplex for 125k. He’s comfortable with an earnet money of 2k… From comps and so forth, we can flip it to an investor/rehabber for 135-140k and leave room for the end-buyer to make a decent profit.
Is 2k earnest money considered ‘high’ for a real estate investor?
Posted by jasonrei on October 22, 2003 at 11:49:38:
It would be “high” for me, but definitely not unusual. Typically I do $1000. If I think it will make a difference (and if I have the money to spare) I’ll go $2-5k. I’ll go even higher, but if I do I reserve the right to receive a portion of that money back if the seller cannot clear title within 30 days. I’ve had some REO and probate deals go several months because of title flaws.
Posted by Brent_IL on October 20, 2003 at 20:10:59:
Earnest money aside, I’m wondering why an agent who can flip to an investor/rehabber for $135K-$140K and leave room for the end-buyer (If you can do it; he can do it), is willing to sell it to you for $125,000.
Posted by Roger (WA) on October 20, 2003 at 18:01:27:
In my dealings, it’s whatever you agree on. I’ve never given more than a $1,000 earnest money deposit and the smallest has been $1.00. The only exception is if a deal is worth more than $200k then I might consider more to make the seller feel more at ease. If you have a pre-approval letter from the lender you can even negotiate in a promissory note instead of using your cash. If you can get by with $1,000 that will leave you the other $1,000 to put down on another deal if one pops up. You always want to put out as little money as possible. There’s always another deal lurking.
Hope this helps.
Roger
Posted by Kristine-CA on October 20, 2003 at 17:59:00:
REI-MW: In my experience, earnest money is a show of good faith, albeit a contractual one. I wouldn’t worry about whether 2K is too high for an investor. I would worry about your other numbers–accurate comps, accurate ARV, accurate repair costs. You could loose the 2K if you aren’t able to find a buyer or close on it yourself.
I put virtually no earnest money into my flips. I put either $100 or $500 into the contract, but depending on the timing don’t always deposit the funds until closing. Now, when I’m the seller, I require $1-5K and I require that the funds be deposited into escrow asap and that my escrow agent clear them right away.
Again, if you feel good about the other numbers you are working with and your ability to do the deal, the 2K shouldn’t be a problem. Sincerely, Kristine
Posted by kfarzin on October 21, 2003 at 01:41:03:
Kristine,
What part of california are you from? When flipping, are you doing any preforeclosures or REO’s? Are you using a EPA(Equity Purchase Agreement) as the contract between you and the seller. Please give some feedback.