flipping question - Posted by Mike D

Real Estate Investing
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Posted by aaron on August 08, 2002 at 20:25:09:

Well, there has been quite an exchange of thoughts on this issue:-) That’s great because we get a chance to learn from each other and that is so important.

Earnest money can be anything really. It can be a car, a refrigerator, a hug, something that shows good faith. I exaggerated a little but I hope that you got the idea.

It is important to understand that the markets can differ greatly in different areas. Although in one area you may only get away with putting $1000.00 down, in another area you could get away with putting $5.00. (I operate in the D.C., Baltimore, and Montgomery County areas. The most I’ve put down, as earnest money, on a house has been $1,000.00. The least has been $5.00. On one occassion my partner and I were able to do a Subject-to deal for $1.00 to the seller)

Although I was able to put that little down, that doesn’t mean the deals went through. I would be more than happy to share those situations with you if you like:-)

One also has to see with whom these offers/ deals are being made with. It is very correct that when dealing with financial institutions and government agencies such as HUD, that there does have to be an earnest money deposit of anywhere between $500.00 and maybe more. I have not personally dealt with any institutions so I may not be that accurate.

That makes a huge difference. Who you deal with. If it’s with an agent you better have some money to put down. Agents don’t play this low or no money down game. As far as I know:-) It is there job to get as much money down as possible and to pre-screen you.

Now, if you were dealing with a seller directly, there really shouldn’t be any reason why you’d put a big number down. There just shouldn’t. Even if the market is hot. (and I know I might get some opposition on this) Whether the market is hot or not doesn’t really matter as much as their motivation factor does. If someone is really motivated, I mean seriously motivated, then the deposit isn’t going to be that big of a deal as you being able to solve their problem for them.

If you were doing a lease-option on the other hand then the deposit may be a factor. Again though, the motivation of the seller is critical. As long as you can solve their problem, they’ll work with you. Don’t take it from me though, I’m limited in my investing experience.

Read the other wonderful informational posts and how-to’s on here.

I hope that this helped. I also appreciate other investors putting their 2 cents in. It’s very helpful:-) God Bless!!

Aaron

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flipping question - Posted by Mike D

Posted by Mike D on August 06, 2002 at 20:55:01:

Im just trying to get this right.
In a nut shell
I find a property
I write a purchase agreement for the property with the right to assignment and leave a deposit
I find a buyer/rehabber and assign the property to him with my 3k profit(for arguement sake)
The original seller, the rehabber and I go to close at a place I set up(to maintain control of the sale) and the rehabber pays closing costs and I collect a check and my deposit. Right?
2nd question. Does the rehabber know how much my profit is and if so how do I justify that profit?

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Re: flipping question - Posted by JoeS

Posted by JoeS on August 07, 2002 at 06:38:37:

Whenever I do an assignment of contract deal I collect at least half the assignment fee from my investor/buyer when they sign the contract. My fee is usually 3K and may go to 5K on more expensive properties.

The greedier you become the the less you eventually make! Your investor/buyers will pay a reasonable fee for great deals. Try to have at least 6 in your pipeline and keep the deals rolling. My 2 cents.

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Re: flipping question - Posted by aaron

Posted by aaron on August 06, 2002 at 22:41:29:

Hi Mike:-)

You shouldn’t have to leave a deposit. If the seller is motivated the deposit shouldn’t be that important to them.

Now, by assigning the contract to someone else, they are stepping into your place. You aren’t going to have to go to closing or anything like that, unless your profit is so much that you couldn’t get it all from a deposit. You usually collect your profit from the deposit. The deposit from your buyer to you should be your profit.

The rehabber will know how much you will be making, but that shouldn’t be a problem if the buyer is serious and you are giving them a great deal. DON’T be GREEDY!! Make sure there is enough room for both of you to make money.

Goodluck!! God Bless!!

Aaron

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Re: flipping question - Posted by Annan

Posted by Annan on August 07, 2002 at 15:03:09:

I am currently working on 1 deal out of three possible distressed properties. I have read on this forum that it is best not to go with a RE agent’s market comp so my question is that is there any other way to figure out the market comp on a property? Your answer would be greatly appreciated.

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Re: flipping question - Posted by Mike D

Posted by Mike D on August 07, 2002 at 06:59:36:

Joe
What do you mean you collect at least half when they sign the contract. Are you refering to the final close or when they sign the contract for our agreement. And is there another way to flip a house without doing an assignment. I found this to be the easiest for a beginner, at least to this point anyway

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Earnest money deposit - Posted by Gerald-DC

Posted by Gerald-DC on August 07, 2002 at 16:23:35:

You do have to leave an earnest money deposit inorder for a contract to be binding. Even if its just $10.00.

Moreover, if you are dealing with HUD or a bank REO you are going to have to leave at least $500.00 give or take a few hundred dollars. And while a seller may be motivated, most are going to want more than $10.00 to tie up their properties, especially in a city with a hot market.

I try to put down the minimum deposit but the lowest I have been able to get away thus far is $500.00.

In my experiences with wholesaling, you as the flipper get paid when the property is closed not when you get the deposit from the buyer. That is, if I got a property under contract with $500 down, I will get my buyer to give me at least $500 down too, more if I can, but it is unreasonable to expect an experienced investor to give you your profit upfront as a deposit, unless it is truly a terrific, incredible, spectacular steal for them (the buyer).

When the buyer closes with the seller, I get my assingment fee at the closing and it is listed right there on the HUD 1 statement as assingment fee.

Personally, if I were buying a contract, I would not give the flipper 3 or 4 thousand upfront as a deposit unless that is what he has already put down as earnest money, what if the deal doesn’t close?

I think if you review your course materials, you might see that the above method is pretty much the standard way of doing things.

I think it is a good idea to make a copy of a recent credit report and send it to hardmoney lenders so you don’t have too many inquiries on your credit report. The question is whether these lenders will accept it. Some will and some will not.

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Re: flipping question - Posted by Mike D

Posted by Mike D on August 07, 2002 at 13:00:25:

Well Im definately not greedy, so thats not a problem. I do however have another question. How do I secure financing afew times a month without having multiple inquires on my credit? Private investor that trusts me 150k yes. But I dont have that yet. Any other suggestions?
By the way this is great help and thank you to all who have contributed, you all will have a part of my success!!!

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Market Comps - Posted by aaron

Posted by aaron on August 09, 2002 at 09:40:54:

Hi there~

There are various ways of determining market comps on properties. One way is to find a service, or a database service that provides sales information on houses.

You can get this information from your State Tax Assessors Office. You can also go to yahoo.com, and then follow the real estate links, and then go to comparable sales. I beleive domania.com also has this information. I could be wrong though.

You want information that is pretty much solid. By this I mean that the homes are within 300 or so sq. ft. in size. Also look for homes which have been sold within the past 6 months, no later. Also look for homes that are about the same age, give or take 3-5years. The closer the better.

There are a few great posts on this subject in the how-to section. Check them out. Good luck, and God Bless!

Aaron

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Re: Earnest money deposit - Posted by Fran

Posted by Fran on September 18, 2003 at 14:38:08:

does anyone know where to download a free ernest or good faith deposit contract from???

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Re: Earnest money deposit ??? - Posted by Dave T

Posted by Dave T on August 07, 2002 at 23:41:09:

Gerald,

Are you confusing “consideration” with “earnest money deposit”. Consideration is a required element of an enforceable contract, while an earnest money deposit only demonstrates good faith.

Earnest money is not required to make a contract binding, though many real estate agents firmly believe that this is so. An earnest money deposit has become so ingrained as a standard practice, that many agents will not accept a purchase offer without earnest money – some will even tell you that earnest money is required to make your offer valid or binding.

I agree with the others who say that if you are dealing directly with a motivated seller, 9 times out of 10 earnest money will not even come up. It is really the real estate agents who insist upon it to protect their commission if the buyer defaults and forfeits the deposit.

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Re: flipping question - Posted by Jim FL

Posted by Jim FL on August 08, 2002 at 24:44:55:

Mike,
Don’t secure financing several times per month.
Instead, get in touch with a local or national hard money lender and get an approval letter from them.
I’m assuming here that the main point in you securing financing is to have “proof of funds” when required.
This letter would be enough for that.

You get this set up so that if you cannot find a buyer for the deal you have a contract on, then you can close yourself.
However, if you are getting these properties tied up with GOOD deals, then finding buyers, or getting private money to close them should not be a problem.

Trust me here, most people selling deals wholesale, with assignments, and double closes are NOT getting financing on all the deals all set up individually.

HTH,
Jim FL

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Re: flipping question - Posted by aaron

Posted by aaron on August 07, 2002 at 15:00:44:

Well, what you could do is print up your credit report and fax it or send it to whatever lender you’re using.

I haven’t used a hard money/ private lender yet, but I have spoken with quite a few. They usually always lend based upon the equity of the property which you are purchasing so they really never check your credit. Again, different lenders have different requirements. Your aunt could be a lender, your friend could be one too, your neighbor, your buddy at the gym, catch my drift? Every lender has different requirements.

So if you make a copy of your credit report and someone wants to know about your credit, just send it to them:-)

Also, if you present the deal in an attractive manner, and the numbers are very attractive to your lender, they probably won’t ask for your credit report (it’s my guess) because (1) you presented your deal in a professional, knowledgable, attractive manner and (2) the numbers are so good they can’t lose.

Hope this helped. Good luck and God Bless!!

By the way, Mr. Ed Garcia has a seminar regarding lenders fighting to give you money. I haven’t been to it but it sounds very promissing.

Aaron

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Re: Earnest money deposit ??? - Posted by Gerald-DC

Posted by Gerald-DC on August 08, 2002 at 10:22:17:

Dave,

You may be absolutely correct. After reviewing my Black’s Law Dictionary you are correct that consideration and earnest money deposit are not the same thing. Further, it would appear that one does not need to put down an earnest money deposit to make a purchase and sales contract binding.

For my own knowledge, I am going to do more research on this issue.

Thanks for the info.

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Re: flipping question - Posted by Miked

Posted by Miked on August 08, 2002 at 08:20:21:

Jim
I appreciate your help. That was the answer I was hoping to get and that helps me move on to my next step. Whatever that is, I guess getting some contacts or buyers set up for some new deals. Thanks

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Re: Earnest money deposit ??? - Posted by Jay

Posted by Jay on August 08, 2002 at 16:54:01:

So does this mean that you shouldn’t give the seller any EM at all? It seems like I’ve been wrong to assume that the seller should get a lot of earnest money when all you need to do is give them $100.00 or something to make the contract binding.

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Re: Earnest money deposit ??? - Posted by Gerald-DC

Posted by Gerald-DC on August 08, 2002 at 17:01:58:

I have yet to encounter a situation where I didnot have to pay earnest money. What Dave is saying is that earnest money is not a requirement to make the contract binding and as such you should put down as little as possible towards earnest money.

Dave apparently has done several deals where he has not to put down any earnest money at all.

In my market I don’t think zero earnest deposits will fly, but then again I haven’t really tried to get away with it. I feel more comfortable putting down at least five hundred on every deal because we are in a serious hot market here and the more I put down, the more likely I am going to get a contract signed by a seller. (contracts to buy, for a l/o or option I am giving them 10 bucks).

I am comfortable doing my earnest money deposits the way I have been so before I change my strategy, I am going to have to look into this a bit further.