The first time I did this I purchased a rental and left the closing with a check for $21,000. Things have changed a lot since I did this, and frankly the way I did it was reckless and not recommended. With that said, there are a handful of savvy and safe ways to buy a house and leave with a check. Here are a few to consider in the New Year:
Closing Date Matters
This works best with multi-family or commercial deals, but can work with a single family rental too. Depending on when you close, all deposits and rents will be credited to you as the buyer. The cool thing about rent is that it is due to you if you close after the 5th of the month. Depending on what the contract says, it is due to you whether the rent was paid or not. Rent is paid in advance so it should be pro-rated to you for the month you close. A word of caution: be sure your purchase agreement states that rent will be paid and pro-rated on “accrual” and not “collected”.
In the commercial world some loans may require you to pay for a full month of interest when you sell the property, no matter when you close. If that is the case, the seller will want to close at the end of the month.
Ask the Right Questions
Was it Wayne Gretzky that said, “You miss 100% of the shots you don’t take”? Wow – what a statement that has served me well. If you don’t ask you don’t get. My kids know this one all too well.
In real estate, you can ask for anything you want. I enjoy purchasing houses with owner financing. When there is very little or no equity, I might ask the seller to pay me to take over their house payments. There is a strategy to get the seller to say yes, which I described in more detail in this previous blog post:
When I walked from the closing with a check for $21,000, it was because I borrowed from a private equity firm that loaned the money to purchase and repair the house. Back then they did not escrow repairs, so they gave me the check for the full amount. Now lenders in this space escrow repair funds, which make it a little harder, but honestly is safer for you and the lender.
I borrowed from this firm on several deals about 12 years ago, some of which I still own today. I thought they were a little reckless, but they certainly filled a gap in real estate investor financing. This is part of the reason I decided to start Pine Financial, which makes a very similar loan.
We loan 100% of the purchase and repairs and escrow the repair money. We understand that money is typically needed up front to get a project started, so we release a small portion of the repair money. We loan 70% of the after repaired value, so if you can find a good deal you can get in with no money and leave closing with a check to start the work. We had a closing at the end of December where our client received all of his earnest money back and a separate check for the first repair draw of $14,000. This is a client we have done many deals with, and is great at finding opportunities. I mention this because I want you to know it is possible and happening today.
Pine Financial is currently only lending in Colorado and Minnesota, but it is not the only privately funded source of capital. There are hard money rehab lenders all over the country that will consider a very similar loan.