Not long ago I was called by a couple of lenders asking if I would promote their website for lending Earnest Money Deposits (“EMDs”), and I asked, “What are you thinking and how many times have you done this?”
Their answer was interesting, “Haven’t done any yet but we have a plan.”
The issue for me was that about 35% to 45%, of all wholesale deals, do not close, and if they loaned these EMDs, they would lose their money!
They had no experience but felt that they had the legal aspects covered by a lengthy Agreement with the Escrow Agent not to disburse the EMD unless both transactions (A-B and B-C) closed.
They were going to charge 50% of the amount loaned (“EMD”) with a minimum of $2,000.
For example, if you borrowed $1,000 for an EMD, you would pay $2,000 for borrowing that amount.
It seems like this would be a usurious interest rate in any state and not allowed, but they had plans and wouldn’t be stopped by common sense.
The real question is, “How do I do deals with no EMD?”, this answer is simpler –
1. One option is to put a clause in your contract with the seller that you will bring the EMD on the day of closing.
This method allows your transactional funder to fund the EMD as part of the expenses on the settlement statement.
This will not work for a listed property because listing agents won’t accept it.
2. I also see listing agents allowing the EMD to be deposited the day after the inspection period is over.
This could work if you get a contract with an end buyer and your contract stipulates that you can use his EMD for the purchase side of your contract with the seller.
3. Another option is to show your potential deal to friends and family members and pay them 10% of the amount you borrow, or 10% of the profit on your deal when it closes.
The smartest thing to do is get your source for your EMD in place before you get a signed contract.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
We have more five-star Google ratings than all the other transactional funders combined.
Visit DaveDinkel.com for full privacy policy, terms of use, etc. Be sure to contact us through the website at davedinkel.com if you have questions or concerns. Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential. No advice is to be construed as legal, accounting, or professional advice EVER. Please consult related licensed and qualified professionals before taking any action. No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.
