Do I Find Property First Then Financing - Posted by Monica J.

Posted by ray@lcorn on October 27, 2000 at 10:14:34:


Your point is well made.

In the context of a large deal I use financing contingencies to avoid creating a hostage situation. In fact, I use a contract that provides for the return of earnest money unless I positively affirm the acceptance of all due diligence items. My article here on due diligence explains this in depth.

My answer to the original post was in the context of buying an SFR, rightly or wrongly assumed from Monica’s status as a new investor.


Do I Find Property First Then Financing - Posted by Monica J.

Posted by Monica J. on October 24, 2000 at 13:46:00:

I have a question (probably a dumb one)by me being a newbie. It was my thinking that you needed to get financing first before you even begin to look for your property. Now in my process of just browsing through finance companies loan processing procedures they all seem to ask for the price of the property that you are purchasing. Now another thing that is confusing me is if I go through my agent and place my bid (I’m looking to purchase a HUD property) and my bid gets accepted is the next step contract and then 30 days to close? If so, that would give enough time to get financing, right (or wrong)?Also, what happens if you cannot close in 30 days? Sorry if these are stupid questions but I’m trying to get out there and if I have to look stupid asking a question about each and every little thing that I don’t understand (whether big or small) then ok just call me whatever. Sorry I just feel really clueless!@!@##

Re: Do I Find Property First Then Financing - Posted by ray@lcorn

Posted by ray@lcorn on October 24, 2000 at 22:33:45:


There is an old saying along the lines of “nothing so concentrates the mind as impending doom.”

That’s what I used for motivation when I first started buying properties at auction. I would bid the property in, then max out the cash advance on my credit cards to cover the deposit, and scramble like he11 to find the money to close. I had some close calls in getting the deals funded… actually had to threaten to sue one seller after going past the closing date… but I always closed. The first time my wife (then my girlfriend) saw me go through this she thought I was nuts. Bad enough to do it once or twice, but I kept several deals floating almost all the time. Forget life in the fast lane… this was more like living in the oncoming lane! I did it that way because there wasn’t a banker anywhere that would give me a credit line or a pre-approved loan, but once I had a property bought cheap enough, I could get the funds. I hope you’re in better shape than I was back then.

The ideal scenario is when you can take the time to develop a relationship with a lender BEFORE you need the money. If you have a business plan, all your financial documentation in order, and the time to shop around, then you can most likely come up with a deal for financing before you go looking at properties.

However, with that approach you run a very real risk of “analysis paralysis.” That’s when the timing isn’t right, the paperwork isn’t completely complete, or the lender’s schedule, or your schedule, or the weather, or who knows what is just never quite right for you to actually get it done. That’s my old friend procrastination popping round for a visit… and he can be a bear to get rid of. That’s why I did those deals on the “excitement” plan… once I had money on the table that could be lost (and that’s what happens when you can’t close), it was amazing how fast I could pull together financial statements, a business plan and whatever else a lender wanted.

Take some time to put your plan into writing, write up a glowing background history as an introduction, and get out and talk to lenders, brokers, sellers, buyers… all of the people that make this business work. Chase some deals, run some ads, do some courthouse work. Once you get in the proximity of deals being made, you’ll learn fast enough what works and what doesn’t. And when you lose a deal that you just know could be a home run because you didn’t move fast enough, you’ll either hang it up or dig in and bear down for the next one. Bottom line, that’s the only way you’ll find out if you really like this business.

I’ve often heard Ed Garcia say there is no teacher like the street… you have to get out there where deals are being made to learn how to make them. Nobody ever gets it right the first time, so hurry up and get the first time over with!


Re: Do I Find Property First Then Financing - Posted by John

Posted by John on October 27, 2000 at 09:17:16:

You seat of the pants folks scare the hell out of me. I usually do my deals hand in glove with my lender/mortgage broker. I buy 30 units and over apartment buildings. Earnest money is anywhere from 10 to 50 thousand dollars. I need the reassurance that the loan will be there before I pony up that kind of scratch. Of course, I usually have 30 to 45 days to look the deal over real closely before signing – none of this get the money here by 4 o’clock stuff for me.

Re: Nice Post Ray…n/t - Posted by Ed Garcia

Posted by Ed Garcia on October 25, 2000 at 13:19:58:


Re: Do I Find Property First Then Financing - Posted by Michael

Posted by Michael on October 24, 2000 at 22:58:47:

Hay Ray,

I like your style, it’s different, but it takes alot of gumption to do deals that way.

My first deal, the house went to auction and nobody showed up. Opening bid $63,250 Market Value around $100,000.
After no one showed up, I called around and found a hardmoney lender, it cost me $5000 (cash advance on a credit card) for closing cost and 14% interest, then I had to call and beg the bank to sell me the house. They said they had to send the paperwork back to VA, so I called VA, they said it still didn’t matter if the paperwork came back with the property sold or not. So, I called the bank back and pestered the hell out of them, until they said I had until 4:00 that afternoon to get the funds to their attorney. Two years later I still own the house, $200/month positive cash flow, and a $34,000 equity line of credit against it.