Watch Out For These Wholesaling Red Flags! | Cash Buyer Financing - The Titanium Vault hosted by RJ Bates III

Episode Transcript
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Speaker 1 (00:06):
Welcome to Wholesaling Red Flags, a new
series where we're going to bebreaking down things that come
up during wholesale transactions.
That should be a red flag tomake you question whether or not
the deal is going to make it tothe closing table where you end
up with money in your bankaccount.
Today we're specifically goingto be talking about your cash

(00:29):
buyers, financing or how they'repaying for that deal.
Now, when you're doingdispositions and you're vetting
out your cash buyers which isvery important that when you are
talking to the cash buyers,you're actually vetting them out
and seeing like what types ofproperties are you looking for?
How many deals have youpreviously done?
How will you be financing thisdeal?

(00:51):
It's very important that youask that.
Now there's going to be acouple of different responses
that you get.
And listen, these are not theonly responses that you can get,
but these are going to be themost common ones.
One, cash.
Two, private money lender.
Three, hard money lender.
Now let's talk about number one, cash.

(01:12):
When they say that there's alot of different variations to
what that could mean, quitefrankly, if you say cash, that
could mean hard money lender,because technically that is a
cash offer, right?
So a lot of times, an end buyerwill say, hey, I'm going to be

(01:34):
paying cash, but really they'regoing to be taking out a hard
money loan.
It could also mean they'reusing someone else's money a
private money loan, that's okayor it could mean it's their own
cash.
The way that you want tonavigate this is ask that buyer
okay, so if you're going to bepaying cash for this and we get
to the point where we want tosend an assignment, ask them can

(01:57):
you just send me proof of fundsyou said you're going to be
paying cash for this and beforeI take this, you know all my
marketing down and say that thedeal is assigned and send an
assignment over to you.
Can you send me over proof offunds showing that you have the
capabilities of financing this?
Because one of the things thatcan also happen with I'm going

(02:18):
to be paying cash is that thecash that they're going to be
using could be.
Is that the cash that they'regoing to be using could be
contingent upon another propertyselling.
If that's the case, you want toknow that up front.
You want to know all of thisinformation so you can keep tabs
on making sure that that otherproperty that needs to close

(02:39):
stays on course for closing ontime.
So anytime someone says cash,you have proof of funds.
If they don't have the proof offunds because it's coming from
somewhere else, verify thatinformation.
Make sure, hey, is thisproperty already sold?
What's the closing date on it?
What I like to do specificallyis, if it's like a property that

(03:01):
they're selling and it's listed, give yourself market as a
favorite on Zillow and it givesyou email notifications if the
status of that property were tochange, whether or not it goes
from pending to close or pendingto back on market.
This is important for you toknow because if it goes back on
market, you can immediately callyour cash buyer and say, hey, I

(03:23):
saw that the it goes back onmarket.
You can immediately call yourcash buyer and say, hey, I saw
that the property went back onmarket.
Do you have another way tofinance this deal?
Now, I was talking about aprivate money lender.
This is going to be very common.
It's readily taught all acrossour industry.
Right, use other people's money.
There's a lot of people outthere that are raising the cash.

(03:44):
That's okay.
Ask them.
Can you provide me with alegitimate proof of funds that
you already have identified thisprivate money lender and then
they have the funds availablefor this deal.
One of the reasons why you wantto do that is because there are
education programs out therethat teach flippers.

(04:06):
Landlords get a property undercontract, then raise the capital
.
This can become a problem foryou, specifically if your seller
is on a very specific timeline.
The reason why I say this isbecause we ran across this a lot
, specifically when we firststarted wholesaling, where we
would assign a deal to the endbuyer they are going to use

(04:30):
private money and then they hadto go raise those funds and if
they didn't do it in time, theywould just ask for an extension.
Like it wasn't a big deal.
However, it was a big deal forour sellers, and so there was a
lot of times where there wasstressful moments early on in

(04:51):
our wholesaling career where itwas like, oh, this is what
they're supposed to do.
They're using other people'smoney, they're going to go raise
the funds.
If that's the case, you stillcan allow them to do that, but
you need to stay incommunication with them constant
communication.
How is it going?
Are you going to be able toraise the funds?

(05:12):
Do you have any leadingcandidates.
Are you going to be splittingthis up where it's only one
private money lender or they'regoing to be two or three?
One of the other things thatyou can do is send over an
assignment contingent upon thembeing able to raise the funds.
So you can still do marketing,and if another buyer comes along

(05:33):
that has more solid financing,then you can assign it to them
and they get booted out of thedeal unless they have the funds
already raised.
They have the funds alreadyraised.
Now it's essentially doing moredispositions, but your options
are you either tell this buyerI'm not going to do the deal
with you and continue doingdispositions, or lock them in,

(05:53):
let them go do their process andcontinue doing dispositions.
The last option is a hard moneyloan.
Now this one takes quite a bitof communication during the
transaction coordination process.
If a buyer says I'm going to usea hard money lender one, if
it's in an area in which you areknowledgeable of the hard money

(06:16):
lenders, hopefully it's onethat you've heard of before.
Right here in Dallas, fortWorth, texas, we're very
familiar with Wildcat Lending,black Label Capital.
In the past there was EasyStreet Capital, there was
Streamline Funding.
There's a lot of hard moneylenders in this metro area so
we're familiar with those.

(06:36):
Now, if they don't know whichhard money lender, that is a red
flag.
If they say they're going touse hard money lender and
they're not already pre-approvedand they don't know which one
they're going to use, I wouldask them I need you to go line
up your financing before we canassign this deal over to you.
If they say they're going touse a hard money lender and they

(06:57):
say, yeah, rj, I'm going to useWildcat Lending.
Okay, very good, let's see yourpre-approval letter.
We get the pre-approval letter,we send over the assignment.
Then, during transactioncoordination, rtc is going to
stay in communication with thetitle company, making sure that
the title company is receivingall of the necessary

(07:19):
communication from the hardmoney lender.
That is the vital piece thatmost wholesalers miss out on.
They'll do the emailcommunication between themselves
, title and the sellerthemselves, title and the buyer
but not like this hidden, secretcommunication between ourselves
and the title company verifyingthat the lender is doing

(07:42):
everything that needs to happen.
The other line of communicationneeds to take places between
you and the buyer.
A lot of times when there's ahard money loan, there needs to
be an appraisal done on theproperty or a BPO.
The majority of hard moneylenders are going to require an
appraisal.
Also, will there need to be asurvey done?
Some hard money lenders willrequire a survey to be done if

(08:06):
there's not one available fromthe seller.
So you need to ask the buyerdoes there need to be an
appraisal?
Does there need to be a survey?
What else needs to be done soyour lender can send the docs
over to the title company?
The communication between youand your TC and the title

(08:27):
company.
Have you received the closingdocuments from the lender?
One of the most common causes ofan extension of a closing is
that the lender doesn't give thetitle company enough time.
They don't give them thelending docs and then give the
title company enough time toprepare their closing docs in

(08:49):
time.
So it's very important that youpress that.
And a lot of times it seemslike we're almost kind of being
jerks where it's like we have aclosing on Friday and we're on
them on Monday Like, hey, haveyou sent over the closing docs?
You find out that informationfrom the title company.

(09:10):
Then also you could just placethat phone call Like hey, have
you done deals with this hardmoney lender.
Do you know what their processis normally like?
Do you know what theirtimeline's like?
This is also why it's veryimportant for you to use the
same title companies over andover and over again.
See, we've used Dana Drapersince 2014 here in Dallas, texas

(09:35):
, so I have a great relationshipwith her.
We've also used Hannah JacksonGreat relationship.
It's easy for us to just belike hey, what's your gauge on
the temperature of this closingin time?
Are you feeling good?
Is the communication up to datewith the hard money lender?
So it's very, very importantthat you keep that line of

(09:57):
communication from the time theassignment is done all the way
up until the deal is closed andfunded.
Hard money lenders are alsonotorious for sending out the
wires in bulk at the end of theday, so it's also important to
make sure that that wire getssent before the wire cutoff time
on whatever the closing day is.

(10:20):
Ultimately, with all of thesedifferent financing options, one
of the most important thingsthat you do is, every time you
send an assignment, your deal isnot officially assigned and
sold until earnest money isdeposited.
This is very important becausethere's times where someone will
say I'm going to use a privatemoney lender or I'm going to use

(10:43):
a hard money lender and thenyou send over the assignment and
they'll take 48, 72 hours todeposit the earnest money and in
the meantime they're trying tofigure out how they're going to
fund this deal.
And if they can't figure thatout in the 48 or 72 hours, then
it's well, it's no harm, no foul, right?

(11:03):
I didn't deposit my earnestmoney.
You should have kept trying tosell it to someone else, and
that's absolutely what youshould do as a wholesaler.
You keep marketing that deal,you keep pushing it until
earnest money is deposited andmore often than not it should be
non-refundable earnest money.
Now there are buyers out therethat require inspection periods

(11:26):
and they will not do theirinspection until after they have
a signed agreement.
Now, if these are regularbuyers and you're building that
relationship and you understandthat's part of their process,
there's nothing wrong withallowing that.
But the majority of buyers, youcould tell them please do your
due diligence up front.
Once you sign the assignment,we'll give you 24 hours to

(11:47):
deposit non-refundable earnestmoney.
And then oh, by the way, howare you financing this deal?
Can I see the proof of funds?
Can I see the pre-approvalletter and then stay on top of
that communication throughoutthe process.
So when it comes to your endbuyers and their financing, this
is a massive thing that canabsolutely crush your deals or

(12:10):
it can lead to you closing moredeals than your competition.
Let me know if I left somethingout in the comments.
Show me some love, give me alike and we'll see you guys on
the next episode.

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