Re: HOW AM I SUPPOSED TO FLIP W/ NO MONEY? - Posted by Jim IL
Posted by Jim IL on March 17, 2000 at 21:04:53:
There are many ways to address this issue, if and when it shows its head.
I did my first flip deal on a bank owned home.
The seller (the bank) wanted me to show proof of funds, because they previously had contracts fall through. (could not really blame them)
I did not have the money, and my buyer was not quite done getting the loan they apllied for. I was confident that my buyer would get the loan, but we still did not have “proof of funds” for my buyer or me.
So, I handled the first one this way;
I drafted a letter to the seller, and said that I would NOT show them proof of funds. I told them that I was an investor and utilized many different funding sources, all of which required a signed contract to get. I told them that if this was not good enough, so be it, and on to the next deal. I also told them that this was a business decision and that my choice of funding was one of the ways I worked to maximize my profits.
Can you believe they took it?
There were some factors here though.
This was December of 1998, around the 10th of the month, and the seller wanted me to close by the end of the month. (they needed to clear the books.)
I said I could and would, and to be sure, the seller included a clause in the agreement that stated I pay them an extra $50/day for every day we extended the close. That was the compromise for the lack of proof of funds. (gotta be creative when you do not have CASH!)
So, since my buyer was confident they could close that fast, I also put the $50/day clause in that agreement as well.
Good thing too.
The closing did not take place until mid January, and my buyer paid me the funds I needed to pay my seller.
The deal was good enough, so the extra $50/day was a drop in the bucket.
After this deal, I did encounter a few more like this.
Basically, what I did now was to have a lender friend draw up a letter saying that he had done loans for me before and based on what I had told him of the deal at hand, I would get funding.
If this was not good enough for the seller, I walked away.
I do not really do flips anymore, but if and when I have to, I can tell you my exit plan will be more solid than before.
But, since I had no money, or source of funds to begin, I just made my contracts all have liquidated damages clauses saying that my earnest money was the only thing I lost if I could not close.
To date, only one deal did not close, and frankly, that was my own fault.
I failed at my due diligence and contracted too high.
No big deal, my earnest money was small anyway and all that I lost.
So, what I am saying to you is this;
Get the deal low enough, and funds will be available, and if not, maybe you contracted too high.
And, if a lender or seller is asking for you to jump thru hoops to buy their property, walk away.
There are plenty of truly motivated sellers out there to sweat just one deal.
Hope this rambling post helps a bit.
I am now off to go drink some irish whisky and good beer.
Happy St. Patricks day,
P.S. The only times I have been asked for “proof of funds” was when the homes were bank owned properties. Other sellers never ask for anything except “when can you close?”.