I recently wrote about 2 Amendments to my Purchase and Sale Agreement that made me $65,000 on a recent Wholesale deal. This post is about 2 Escrow Clauses that made me that same $65,000.
FACTS: SFR, off market, FSBO in Los Angeles. Purchase Price was $860k. I sold it during escrow for $925k. I double escrowed the deal - 2 escrows.
Escrow #1: I was the buyer, buying the property for $860k.
Escrow #2: I was the seller, selling the property to an end buyer for $925k.
The two clauses I used in Escrow #2 (and got the my end buyer to sign off on) was as follows:
Clause #1: "Escrow #2 is contingent upon the successful concurrent close of Escrow #1." The purpose for this clause is to protect me in the event that I don't successfully close on escrow #1. What if something happened in escrow #1 - the deal where I was buying the property that prevented me from transferring clear title to my end buyer (escrow #2)? My end buyer could seek specific performance and sue me to deliver title that I don't have. This clause protects me in the event something happens and I cannot deliver title to my end buyer.
Clause #2: "Seller (ME) may use the Buyer's funds to finance the acquisition of the property." Yep, you read that correctly! In Escrow #2, I'm the considered the seller and I used my end buyer's funds the ($925k) to purchase the property in Escrow #1 for $860k. What is the significance of this? I didn't use ANY of my own funds to purchase this house - but instead used the funds of my end buyer! We live in a beautiful country where something like this is legal!
I hope you find this information and strategy useful! Let me know how I can help you on any of these or any other type of deals.
Well Damn!! That's what I'm talking about!!
Legal...but for how long? In 1998 I did a deal that played out like so:
1- I had my agent find me a property in a so-so neighborhood for 32K.
2- I offered 18K with $50 down; It was accepted.
3- I asked the seller for the zoning certification and proof of title (I knew that my end buyer would request the same from me).
4- My contract with the original seller stated that I would pay the balance in 30 days.
5- I found a cash buyer in 12 days. I did a contract with him, with me being the seller.
6- He agreed to pay 27K in two weeks in exchange for no money down.
7- Now I had two contracts: #1- I was the BUYER at 18K with $50 down. #2- I was the SELLER at 27K due to close in 14 days.
8- My part of the closing costs would fall on my end buyer.
9- I set up a closing at the title company. I was called the CONTRACT PURCHASER ( even though the title better suited my end buyer). The closing took place with both my seller and buyer in the same room (rookie mistake).
10- The title passed through me, straight to my buyer since my contract was assignable. I basically sold my interest in the property.
I walked away with 9K and a big head. I had done my first deal. When I attempted to book another closing a month later, the title company stated that the attorneys for both sides of my deal "didn't like it", and that they would no longer accommodate my deals (I realized that failing to keep both sides separate was a huge mistake). After a while, I could not find a title company in the City of Chicago that would do this type of deal, even after I restructured things.
Not to long after that, FULL DISCLOSURE was required in Illinois for these types of deals.
Trust me, whenever the "authorities" realize that individuals are making an easy killing, they change the rules of the game. Nice info, though.
That's pretty sweet @Jared K. . Great. Now we'll have another couple hundred more newb wholesalers! lol
Good thing you don't have excise transfer taxes in CA? Here in WA that would have taken you for 1.7% X2. Wanna do the math on that? We don't double close here, needless to say. Well done!
Congrats @Jared K.its all about disclosure these days to cover ones back
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