How To Pay For A Wholesale Real Estate Deal

Author: Thomas Bartke

Now that you are on a wholesale investors’ in-house distribution lists, how can you make sure that you can actually get one of the great deals that are coming to your inbox? The answer in two words is “be prepared”. You have to know how you will pay for the deal, and what types of deals can be matched with your method of payment.

Cash

Some wholesale deals are so cheap because the property condition is too bad for conventional financing. You have to pay cash for these deals (or use certain types of “non-conventional” financing - see below). If this is what you’re looking for, it’s a good idea to have a current bank statement or other proof of funds ready to go. You can even put a copy of your proof of funds on file with your wholesale dealer.

He/she will give you preferential treatment knowing that you are a serious buyer. You may get a fax or phone call on their juiciest deals before everyone else.

Non-Conventional Financing

“Non-conventional financing” is “Private Money” or “Hard Money”. When using Private Money you find a private individual to put up the cash for you. This could be a friend, family member, or anyone else you know. Private lenders would do this because they can get a higher interest rate and the investment is secured by real estate with a large amount of equity.

Hard money lenders are in the business of arranging financing for distressed properties. They will let you borrow up to 65 to 75% of the value of the property. These loans are quite expensive, but the cost is offset by the low price of the property. It’s also a good idea to have your approval for financing, or proof of funds from your private lender on file with your wholesale distributor.

Conventional Financing

Some wholesale distributors will work with conventional financing on some of their deals. This applies only to properties that are in fair condition or better, because conventional lenders won’t do the loan on the major fixers. Because of the condition of the home and the extra time you will take to close you can expect these deals to be in the range of 75 to 90% of the fair market value. This is still an excellent bargain deal, considering that you don’t have to any major repairs.

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