Five-person group wants me to fund earnest money at $2,500 a contract for $500 a deal

Basic question I'd have been embarrassed to ask out loud. If the deposit is hard and the deal dies, does the seller keep it, or does it depend why it died?

compass, generally hard money means the seller keeps it if the buyer walks for a reason outside the remaining contingencies, and if the seller is the one who defaults you can usually get it back, though "usually" involves either the seller agreeing or you chasing it. State law and the specific contract language both matter, so it's an attorney question on any particular contract.

sable, I've been on the borrowing side of this. What I'd tell you is that the $500 flat is priced for the deals that close and ignores the ones that don't, which is why the annualized number looks silly. When I used an EMD funder, the pricing was $350 flat plus the funder held a signed assignment of my fee, and on the one deal that died I owed him the $2,500 back personally. That personal recourse is the entire deal. Without it you're an unsecured investor in five part-timers' judgment.

Six or seven grand out at all times, no control over the underlying property, no idea of the loss rate, in exchange for $2,000 a month if nothing goes wrong. That is a business where you find out how it works by losing money in it.

New enough that I had to look up EMD. So the deposit isn't payment for the house, it's the money that says the buyer is serious and it comes off the price at closing? And in these deals the wholesaler never actually buys, they hand the contract to someone else, so the deposit just sits at title until then. Do I have that right?

rigging, yes on both, with the wrinkle that on an assignment the end buyer usually reimburses the deposit or brings their own and the original one gets released back, which is a mechanical step people forget to paper.

sable, go per-deal, and the documents I'd want are a short promissory note per advance with personal guarantees from the specific member, a collateral assignment of that member's assignment fee, and written instruction to the title company naming you as the party the deposit is returned to. The last one is the piece people skip and it's the one that decides who gets the wire if things go sideways. Whether title will accept that instruction depends on the company and on state escrow practice, so confirm in writing with the actual closer before the first deal.

The pool version compresses all of that into one agreement where your exposure floats and you can't tell which member caused a loss. Both structures need a lawyer, and the pool version specifically is where the securities analysis lives.

"Two or three didn't close last year" out of an unknown denominator is the whole post. If they do four a month that's roughly 48 contracts and three failures is 6%, which at $2,500 a pop against $500 fees is close to break even before you count your time. If they actually did 18 contracts, three failures is 17% and you lose badly. Same sentence, two completely different businesses.

quill's arithmetic is the answer and they'll never give you the denominator, because groups like this count contracts written and closings separately and never divide one by the other.

One more thing to check before pricing: who chooses when the deposit goes hard. If a member can agree to hard money on day one to win a seller, and it's your $2,500, you've handed the underwriting pen to the person with none of the downside. I'd want a rule that anything going hard before an inspection window closes needs your sign-off, and I'd want it in the note rather than in a text thread.

Also ask whether any of the five has personally lost a deposit before. The ones who have take contingency dates seriously.

Start with one member, the one with the longest track record, three deals, per-deal notes. You'll learn more about the loss rate in ninety days than they can tell you, and $2,500 is a survivable tuition.