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Real Estate Investing – Where do you find earnest money for your deals?

Transcript below from video above

photo_-__2012-09-19_at_4.38.43_pmHey there, what’s going on? It’s Jason Lucchesi. Hey, I just want to come to you today, I wanted to make this video to answer some questions that have been coming in. I know the videos that I’ve put out about the whole “Naked Investing” have been working really well for some of you out there, and you still had some questions. That’s cool, that’s why I make these videos is that it gets you in the process of getting your business moving in the right direction, and if you do have questions all you need to do is put your questions down at the bottom of all my blog posts, if you need help reach out, let me know. The one thing I want to cover today is Earnest Money Deposits. I had an individual contact me about Earnest Money Deposits, how do you get the funds for Earnest Money Deposits if you don’t have those particular funds available to you right now?

I’ve been in this situation before folks, to where you really might be in a position to where I was when I first started in 2008. I was living on unemployment check to unemployment check, so having proper Earnest Money Deposit funds may not have been in my best option at that time. I may not have had those funds available, so the reason why I wanted to make this video available to you today is to kind of share with you some of the things that I had to do in my business in the beginning to really make things work, and to really structure things in a way, especially on a purchase and sales agreement that would be in your favor to really get things going. You don’t necessarily have to use your funds for the Earnest Money Deposit. Let’s get into that, let’s dive into that right now.

Structuring Deals Without Using Your Own Funds For Earnest Money Deposits

StructureFirst thing, that I want to let you know is if you do not have funds, the strongest recommendation that I can give to you, especially if you’re going to be whole selling, I would highly encourage you to be whole selling deals if you do not have the funds available, even for an Earnest Money Deposit. That’s the first thing that I definitely want to establish within the making of this video. The main reason why I say that is you need to have a strong buyers list for what I’m about to tell you, and how you can start duplicating and executing this within your own business. You need to have a buyers list to really make this work, and let me explain why. When you get a contract together, say it’s a rock solid deal. You have on your contract a deal for thirty thousand dollars, and you know that you could quickly flip it to another investor, for let’s just say forty five thousand dollars.

The cool thing is what you can do in this particular manner, most sellers require an Earnest Money Deposit. A couple options that you can do here, you can get the deal under contract. You could allow yourself, let’s just say three to five business days to get those Earnest Money Deposit to that seller. What I typically do is I don’t give those funds to the seller, I’ll place those funds into my escrow account with my title company. Those funds get held in escrow until we actually close, okay? Why give myself those business days in order for me to setup this transaction properly? Well what I’m doing is I’m having my end buyer give me what’s called a, “Hard deposit.” A hard deposit means it’s pretty much non-refundable, the only time I give those funds back from a hard deposit standpoint is if something comes back, I didn’t disclose something properly within my purchase and sales agreement, such as an inspection happens and there’s maybe termite damage, or I didn’t disclose something possibly with the foundation.

homeinspection-8If that’s the case I’m going to give the funds back, and I highly encourage you to operate the same way within your business because you don’t want to get an end buyer, especially a cash investor upset over piddly amounts of money. You have to think long term here. I do that, I get the end buyers funds, so I do a hard deposit. If I’m going to be at forty five thousand dollars on my second transaction where I’m doing an A to B, B to C transaction here, what’s going to happen is I’m going to go ahead and get Earnest Money funds, typically what I do is like to receive, especially on deals below a hundred thousand dollars, I’m going to request two thousand dollars as a hard deposit. The main reason why I request that amount is it really gets that individual committed to buying your deal, okay? If you ask for two hundred and fifty, five hundred dollars, they may not be fully committed. If you ask for two thousand dollars it gets a much higher committed person involved.

What you can do at that point is you could take those funds, you could put it in your title companies escrow account, and then what you can do is say for instance your escrow account for your seller, your A to B transactions five hundred bucks. You could let your seller know, “Hey, call, you can verify that Earnest Money Deposit has been put in place for our transaction.” They could verify that right then and there, and then you’re good to go from that standpoint.

Second option that you can use without ever using your own funds

The other thing too that I would like to do, this is the second option. The second option out of the two that I prefer, and can be easily duplicated within any business. The one thing that I would tell you that you could do to is, maybe like with the addendum section on your purchase and sales agreement that “Earnest Money Deposit funds will be deposited three business days prior to closing.” That allows you time to go ahead and find that end buyer. Again, I strongly suggest that you put together your buyers list (for someone brand new, you ideally want to have a list of ten solid investors) before you get to that situation. You want to have your buyers list put into play because as soon as you get a deal you want to be able to get that deal quickly under contract with your end buyer. That’s what I recommend, that’s how I would recommend that you put the deal together. Additionally covering on top of this, you could put that statement into play for your transaction.

Protecting yourself from a bad apple of a deal

bad_apple__teeth_by_alfredparedes-d5u22zpYou also want to be able to have some outs. Make sure there’s some sort of an inspection out that you can have on your contract where Earnest Money Deposit refunded back to you if something does pop up, maybe an appraisal inspection. Those are the things that I would recommend that you definitely have in place to ensure that you are making a proper deal. The other thing that I would recommend here is by having the statement in there on your purchase and sales agreement that allows you to really be in a position that allows you to not use any of your own funds. To not use any of your own funds, and use your end buyer’s funds in a legal way. By you having them give you Earnest Money Deposit for that transaction, that’s essentially giving you Earnest Money Deposit on the B to C, not the A to B. You will take those funds that you just received and give them to your A to B transaction.

That will allow you to do that and if you have not watched any of the previous videos that I have made recently here on my blog, check them out because it will also explain some of the people that you can use for transactional funding, and getting your deals funded in a way to where you don’t have to use any funds whatsoever, and if you don’t want to use a transactional fund I also disclose how you can use the end buyers funds for your transaction in a very legal way, to where your state will be completely fine with it. Again, I’m not an attorney, I’m not giving you legal advice. If you need legal advice please seek out legal counsel for that in your particular state, or if you would like to use my legal counsel, my attorney, let me know. I’ll be more than happy to share that information with you, he’s a great guy, definitely knows what he’s doing when it comes to real estate, real estate investing, so it’s really good to have somebody like that on your team.

The Conclusion with executing these strategies

This is it, I just wanted to make a short quick video explaining some of the things that I do, or have done, especially when it comes to Earnest Money Deposit. Same thing will apply, you can do that on HUD Homes as well. The two strategies, the two options that I just gave to you … well actually, if you’re talking about a HUD transaction you can use option number one that I explained within this video, where you can use your end buyers funds to put down the HUD Earnest Money Deposit. Just remember on a HUD deal, you have two business days to get that in so you must move very quickly or else you could potentially lose that deal.

Other than that I am Jason Lucchesi, if you need anything else let me know, I’m here to help. You’re obviously at if you’re watching this, or you’re on my YouTube channel. Just leave me a comment below if you would like me to make additional videos, if you would like a certain topic for me to cover, I’ll be more than happy to do that for you. Other than that I’m signing out, and if you would like to get a copy of my latest free book just go ahead and click the link below. If you’re on my YouTube channel just head on over to, it’s free, just put in your first name and email address and it will get automatically sent to you through our good ole twenty first century technology. Other than that I will talk to you guys later, have a great day, bye now.

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