The chicken or the egg... advice please.

16 Replies

Newbie here...

So, I've heard on the podcast a few times that the deal is the hard part.  And if you find a good deal, the money will be easy.

So my question is, do I start marketing toward sellers, and work out a deal as if I know I have the money covered (not necessarily telling them its cash, but with the confidence that the money is "there"), and then after an agreement is reached (presumably the agreement says I have 30 days to close?), I go find the money in those 30 days?

What do you do if for some reason you don't find the money?

I don't want to put a seller in a position where they think they have their property sold, and then not be able to follow through... But I also don't want to fall into the trap of analysis paralysis, where I need to have everything lined up first... and then I'm dealing with "the chicken or the egg". 

Any advice?

I would line up a financing option that would allow you to purchase the property.  That may not be your preferred exit strategy, but that would allow you to close a deal and not leave the seller stuck with an unsold property.

If you have skills as a contractor your best option might be to partner with someone who has capital, but not the skills to fix/improve properties.

Happy St. Patrick's day, good question.  If it were me, I would attend some real estate groups in your area and start making contacts.  See who the mover and shakers are and what these investor types might be looking for;  I would line up my investor types first;  you might also explore the Joint Venture route;  contact some of you friends and business connections and see who might be interested in becoming a financial backer.  Use your reputation as a  Contractor to attract financial supporters.  I am aware that there are those who will say get the deal and the money will come, but that has risks that appear to concern you.  Hope I've helped.

@Corey Johnson Great question! 

This really depends on what type of investing you are doing, because if you agree to buy a home and you dont. Then you hurt your reputation and possible law suit. So, make sure to surround yourself with the correct support team before you make a costly mistake. 

My experience is within wholesale. I reached out to BP members and through that started working some leads. I got a couple of them under contract and spoke with cash buyers and added them to my data base. I did the same at a local REIA to increase my network. With an idea of what people are buying I am marketing to their numbers. I believe this go around will be easier due to more intention in my marketing, but I wouldnt have gotten here if I didnt just go out there and did something.

What type of investing are you going to do? How are you going to market to get that lead? 

@Corey Johnson

 Hi Corey.  A typical Real Estate Contract for Sale is going to contain a financing contingency which can provide an out for you if you are unable to obtain financing.  You may lose the GFD that you put down to put the contract in place, which can be as little as $1 or a larger amount (say 10 percent of the sales price), without the appropriate legal language in place.

Additionally, the seller can also put a 48 hour contingency in place, so that if a more "legitimate" offer comes in they can invoke the 48 hour, forcing you to lock the deal down within 48 hours or negate the existing contract that you have.

In general, always consult with a good Real Estate attorney before getting a legally binding agreement in place!

Thanks everyone for te advice.

@Walter Pape, coming from the contractor background, I'd like to do rehabs for flips, and buy and holds for long term, depending on the deal, if I can flip it for enough profit, and then roll that money into a rental for long term.

Deciding what to do as far a marketing is what spurred the question in my mind. I was thinking I could start quickly with direct marketing and "driving for dollars" (I work a lot in the neighborhoods I would be findings properties.)  So I was thinking "What do I do if someone calls?"  

Is there enough time in negotiations to secure financing, or a financial partner?

I'm more confused after reading this post's comments. I don't feel that the question was answered :/

Rod Desinord, Real Estate Agent in FL (#SL3255845)
Originally posted by Rod D.:

I'm more confused after reading this post's comments. I don't feel that the question was answered :/

 If the finest twenty first century scientists can't answer the question of which came first, how can we? But the general "money or deal first" question has been thrashed around hundreds of times in multiple BP "Wholesaling" threads, and will continue to be thrashed here, so stay tuned...

Hi @Corey Johnson !

Josh here from Atlanta. I'm a newer investor, so take my advice lightly!

If I put a contract on a house, and I had little idea of how I was going to pay for it, I am not sure I would get any sleep for the next 30 days. I'm all for calculated risk, but the unknowns of contracts without a clear end-game would be far more unsettling than I could handle.

I have secured private funding for one of my recent acquisitions, and I did it by putting together a few sample deal analyses in my target neighborhood. I drove the potential financial backer around town, showing him not only the houses for sale, but also the reasons why I liked the idea of investing in this particular area. After the drive, I bought lunch, and we went over the sample deals I had put together.

A few weeks later, I found an actual deal that I wanted to pursue. I approached this individual about the specific deal, asking him if he would like to invest. He already had a vision for the neighborhood at that point, and he was excited to hop on board.

It was an easy sell because he already had time to warm up to the idea, and all we had to do was write up the agreement. (Which, by the way was a fairly standard note at 7% interest).

I wish you all the best with your ventures. Cheers!

OK, I'll answer the question.  You need a chicken (cash buyer) in order to make an egg (deal) because no deal happens without CASH.

So, Step 1 - get involved locally (via local events and online - BO, MeetUps, etc.) and FIND CASH BUYERS that can bring money to the table.  You don't need 100 of them but you need more than 2 (people that are ACTIVELY buying, rehabbing, financing, etc.).

Step 2 - Do your marketing and find a deal.  You are offering CASH not the offer to go find a buyer - that's what real estate AGENTS do.  If you are not promising CASH and a closing in 10-14 days, you will be beaten in the market by people that are.  But it is your CASH BUYERS who can deliver on this, not you.

Step 3 - (Do your research, negotiation, etc. and ) Get the deal under contract.

Step 4 - Contact your Cash Buyers with your offer to assign the Purchase Agreement.

Step 5 - Assign the deal to a Cash Buyer.

Step 6 - Collect your assignment fee (and get your EMD credited back) at closing.

Step 7 - Rinse & repeat.

“The key to everything is patience. You get the chicken by hatching the egg, not by smashing it.” - Unknown

Thanks @Dev Horn , that is very  helpful.

And thanks to everyone for their input. I really appreciate it. 

Originally posted by @Corey Johnson :

Thanks everyone for te advice.

@Walter Pape, coming from the contractor background, I'd like to do rehabs for flips, and buy and holds for long term, depending on the deal, if I can flip it for enough profit, and then roll that money into a rental for long term.

Deciding what to do as far a marketing is what spurred the question in my mind. I was thinking I could start quickly with direct marketing and "driving for dollars" (I work a lot in the neighborhoods I would be findings properties.)  So I was thinking "What do I do if someone calls?"  

Is there enough time in negotiations to secure financing, or a financial partner?

Depends on the deal of course. If the numbers work and you get it under contract then the numbers should work for other investors if you are attempting to raise capital. I would line up a hard money lender if it comes to push to shove.

Build it... and they will come.

If wholesaling... it pays to have inventory...

Just like residential resale... 

Those who list... last.

Build a Salable Inventory, and you will get the buyers you need.

Have a Powerful Sales Day! 

hm.. when you have a contract on the property, you can include a "financing contingency" in the contract. This is a clause which states that if you are unable to find adequate financing in the alloted time frame, you are allowed to back out of the deal with no repercussions. And sometimes, if the seller is more motivated to sell than you are motivated to buy, the seller will *help* you buy it by offering you easy terms, such as the exit strategy known as seller financing. This is basically where the seller holds a promissory note, with an agreement that you will pay him/her back over time rather than a lump sum all at once. Essentially, the seller him/herself "becomes the bank." To negotiate a condition like this, you'll have to talk to your seller and ask if he/she would be open to the possibility of providing seller financing. I also want to point out that in some cases you can get "pre-approved" for loans ahead of time. It wouldn't mean you have every little detail in all the stars lined up like in analysis paralysis, but it would mean you have some of puzzle pieces in place.

Corey

Your original question was find the deal first or find the buyer first. 

Since I started investing back in the age of the dinosaur I have always found finding the deal first is my best shot because without a deal what good would having a 100 buyers be. Others say having the buyer first allows you to focus on an area to find a deal and when you find it you have a built in buyer. BS, you still have a built in potential buyer, not the same as a sure thing buyer. Plus one reason this buyer wants to use you is to find this deal is that is hard to find.

And as a surfer friend used to say to me after some guru told him find the buyer first and then the deal, they want me to find the only shell on the beach and then they want me to cut my price after I have found it because they are the only buyer on the beach at the moment, but what they forget is I still have the only shell on the beach at that same moment and other people will want that shell too..

Plus that buyer almost always wants to find a deal in an area I'm going to be working anyway and if he is on my buyers list as wanting that area he will be getting one of my first calls. Another reason I don't work war zones or lower level housing is I take a shot at semi-retailing for a week or so if it is the right property, many non-investors who are looking for a home will jump at a retail price with a good discount.

So after 60 years of investing I still say do both at the same time but focus on finding the deals first. No deal, don't need to show no stinking badge. Really liked that movie.

Well put Dev Horn, I agree with you  100% . love what Joshua Feit input as well that entire concept of taking your potential backer for a ride showing him or her your strategy  live  is brilliant. That builds confidence into your investors in my opinion

@Dev Horn is a great teacher of wholesaling, what to do and what not to do in wholesaling.

If you are offering cash, I would:

1. learn about JV Partnering - half of something is better than nothing.

2. learn about Hard Money Lenders - search BP and your REIA. Know what they will do and what they require.

3. learn about Self Directed IRA Loans - See www.TrustEtc.com

learn about the Private Banker Concept.

4. Give speeches - go to toastmasters.com to learn how to give a speech, talk about you finding the deal, looking for jv partners to get a win win.

And Don't be a one Trick Pony, if you find a thin deal, not enough equity, then 

-list it, 

-buy it sub2, 

-lease option it, etc.

Make money on most of your leads.

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