I get a lot of questions in the Astro community, especially from beginners in wholesaling.
One question I get from both new and seasoned wholesalers is about money.
More specifically, how to find money for the earnest money deposit (EMD).
As I’ve mentioned, wholesaling is one of the best ways to get started in real estate investing because you don’t have to worry about needing a ton of money to get started.
But this doesn’t mean you can buy houses without having proof of funds, that is, the EMD for purchase.
What is an Earnest Money Deposit?
So what exactly is EMD?
The earnest money deposit is the deposit that’s made to a seller when making a purchase; it’s basically the representation of a buyer’s good faith.
This is an extremely crucial initial step when it comes to purchasing homes because it helps to build on the trust you’ve – hopefully – started when you first contacted an agent or seller.
Now there are a lot of different options when it comes to finding the money to prove that you’re serious about buying a home. For us, as wholesalers, the two biggest options are hard money lenders and private money lenders.
A hard money lender, HML, is a lender that finance’s a buyer's secured fund for purchases:
Think of HMLs as a specific type of asset-based loan, which can either be issued by a private investor or a company and offers a straight line of interest without having principal payments.
A Google search for your location + hard money lenders will give you a list of those operating within your city or state.
So that’s an HML, now let’s talk about private money lenders.
A private money lender is usually a private individual that has the money to lend to purchases.
PMLs are sometimes other investors who want to invest in properties, but maybe don’t want to become wholesalers or fix and flippers; instead, they help to finance these opportunities.
So where do you find PMLs?
In most cases, friends or family are within your immediate circle. For me, when I look for PMLs, I look at those people who believe in what I’m doing as a wholesaler and a business.
But you don’t have to just look at your friends and family.
Like I said, PMLs are usually private investors, so one of the best places to meet them is through social groups or meet-ups. You can also ask others if they have a connection that’s also a PML.
Now working with PMLs is different than working with HMLs. The reason being is that each PML is different, so any terms they have set will vary, especially depending on how well they know or don’t know you.
For example, if your PML is a family member or a friend, you might get a lower interest rate – or no interest rate – versus if you have a PML that isn’t as familiar with you.
And that’s it, guys!
PMLs and HMLs are some of the best ways to get funds, but if you’re having trouble finding some, then come check out the Astro community!