Since the use of earnest money in the US has become more widespread, having liquidity has become a competitive advantage in CRE investing. Investors with enough liquidity to pay have the door open to negotiate and close deals faster while illiquid ones are left out in the cold.
Yet liquidity is not easy to come by, especially for real estate investors who depend on mortgages and wholesalers whose business models do not traditionally rely heavily on liquidity.
Fintechs like Duckfund have provided help here in the form of earnest money financing, which allows CRE investors to Sign Now and Pay Later for as many deals as possible.
In what follows, we consider why real estate investors have liquidity problems and how earnest money financing can help them avoid missing out on good CRE deals.
The Liquidity Challenge
Investors who depend on mortgages for financing real estate transactions might be short on cash at the time they see a property they like.
Of course, they will be able to complete a mortgage deal when it is time to close. However, most sellers in the US will not even allow them to negotiate for and inspect the property in view without the payment of earnest money.
Even investors who don’t depend on mortgages might have a short-term liquidity challenge that they hope (or are sure) will be resolved when it is time to close. But they are also prevented from negotiation and inspection until they have gotten the cash needed to pay the earnest money deposit.
Real estate wholesalers can also be in this situation. Their business model depends on securing purchase contracts for properties (without paying for them) and then assigning the contract to someone else while profiting from the difference between what they agreed with the initial seller and what the final buyer is paying them.
While their business model does not depend on using their cash to purchase properties, they still need to pay earnest money deposits to have a chance of securing the purchase contract.
Wholesalers also often find themselves with cash flow challenges that make it difficult to sign purchase contracts for desired properties.
In Search For Cash
Of course, real estate investors won’t throw up their hands and resign to fate. They will search for ways to raise cash to get their feet through the door.
Yet, that search is embroiled with various difficulties.
Take commercial banks as an example. They are often inaccessible, especially for small-scale real estate investors. And even when they are accessible, the requirements are stringent (including credit reports). Also, by the time the application has been successfully treated, the property may have changed hands already.
Many have resorted to non-traditional funding means like online lenders. These are more accessible and applications can be treated quickly. But then you have to deal with exorbitant interest rates and other unfriendly lending terms.
Borrowing from family and friends is another option. However, this might be inaccessible since they might not be able to raise the funds. Moreover, if you have to pursue many deals, this might become even more challenging.
In addition, financial advisors always advise against borrowing money from family and friends because of how money can destroy personal relationships.
Earnest Money Financing
Firms like Duckfund introduced earnest money financing to solve this impasse. Unlike other funding means, it is a method specifically designed for earnest money.
With it, CRE investors can get the earnest money deposit they need to proceed with negotiation for properties of interest.
Duckfund provides earnest money financing for as many deals as possible so illiquid investors can keep building their portfolios.
This financing is accessible since it does not require a credit report and the application can be completed in just two minutes.
Funds will be transferred to the escrow account handling the earnest money deposit within 48 hours. Also, the financing fee is low when compared with alternative funding methods.
With Duckfund, you don’t have to let liquidity prevent you from expanding your real estate portfolio. You can Sign up Now and Pay Later.
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