I just closed on a wholesale deal grossing $65k! I put $1,000 into the deal and spent 10 hours of time on it. This post is not to brag, but to share some key tips that I take for granted but for those of you starting out and want to try wholesale deals, you NEED to know about these.
FACTS: SFR in Los Angeles. Off Market, FSBO. The lead came to me from another attorney friend of mine that specializes in Probates. I tied the deal up quickly with 2 very critical amendments to my P&S Agreement (will discuss below). I originally sought to flip it myself, however, relying upon hard money lenders made the profit margins very thin. It soon became apparent during escrow that the better strategy was to flip it in escrow - assignment or double escrow it (and there is a difference between the two).
I always attach to my offer (and have the seller sign) a customized Addendum to my P&S Agreement. The first line of my addendum reads: "This Addendum incorporates by reference the P&S Agreement between the Seller and Buyer dated ___, and should any inconsistency exist between this addendum and the P&S Agreement, this addendum shall control."
2 Critical Terms to My Addendum:
1) In California, the standard P&S Agreements / Offers Forms contains language that an assignment can only be made if you get the express written consent of the seller. Well I don't like that term because it gives the seller control. Also, what happens if I have removed contingencies and then find my end buyer that I want to assign it to and the seller objects and won't give consent? I'm screwed. The fist thing we are taught is on the offer to write "Your Name and/or Assigns" - however, this doesn't matter as the language allowing the seller to void your assignment controls irrespective of whether you write "and/or assigns." So my addendum states: "Buyer shall have the ability to assign his rights to this contract WITHOUT THE EXPRESS WRITTEN CONSENT OF THE SELLER, AT BUYERS UNFETTERED DISCRETION." What did I do here? I changed control of the deal - to me!
2) When possible, attempt to negotiate and get the Seller to agree to allowing you to have keys (or a lock box) on the property BEFORE closing escrow (obviously only works if the property is vacant and is a FSBO). In this current situation that I just closed, the seller lived out of State and was going to have a friend meet me at the property to grant me access to the house each time I needed it. I told the seller I plan to have plumbers, electricians, mold inspectors, termite inspectors, A/C guys, roofer, painters, floor guys, etc.... all give me bids on the rehab and that I would be needing access often times at the last minute and during work hours (when his friend was unable to give me access). So in exchange for releasing him of any liability should any of my vendors hurt themselves while on his property prior to the close of escrow, the Seller handed over keys. The key here (no pun intended) was that not only was I able to get a real solid number on what it was going to take to rehab this house and get a solid ARV number, I was able to shop it to my end buyers - my rehabbers!
Georgia purchase and sale agreements have the same language about written consent to assign, so I did the same thing. Not your exact words, but I'm thinking I should change the words in my addenda since your phrasing sounds more legalese-like. :)
I have one for the keys and unrestricted access as well.
Now, if I can just get a $65k wholesale deal...
Jared K. Thank you for the post. It is very helpful. I have a question. You said while the property is in escrow. Can you explain this a little more? Do you mean the due diligence period while your deposit is in escrow? Did you do a simultaneous closeing? How long do you try to make this escrow period?
What was the price of the property?
In that area I can see a sale price of $650,000! Good job and I certainly use an addendum to address specifics. In a RE P&S contract the owner is favored over a buyer, some aspects of trying to control what is usual and customary or required by statute can become an issue, you may get into predatory type transactions with a lopsided contract, so be careful in what you write. What we have above is good lawyering. Good job Jared! :)
That awesome @Jared K. ! You landed a solid one.
hi all, the original purchase price was $860k and I ended up selling it for $925k. Yes I did a simultaneous close - or double escrow. The language you use for a double escrow is key too! Will blog about this next. I must admit it helps being a lawyer sometimes too! :)
I thought so Jared, good work at $6500 an hour! :)
jesse T - remember the price is not what is the issue in these - it's whether you leave enough meat on the bone for your end buyers and have a good end buyers list.
This was so helpful to me... Needed that information
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