Wholesaling is for the STRONG at heart!

2 Replies

At the beginning of 2014 I received my tax return and decided it was time to stop reading about investing in RE and start doing. I took $2,000 and placed a offer on 2 HUD properties. One was a Town Home (TH) and the other Single Family Home (SFH). Each required $1,000 for Escrow. I secured the TH at $78K and it had an ARV of $115K. I secured the SFH at $148K and its ARV was $180K. REMEMBER this is my first wholesale deal so I know now that these #'s were way to tight. To get the TH story out the way, that one did not sell in the 45 days time frame so I lost the $1,000. However, I reached out to a few individuals that I knew wholesale property. (Is it wholesale or wholesold.. .. anyway.) Two days after receiving and executed contract between me and HUD, one of the wholesalers told me they had a RETAIL cash buyer ready to buy the SFH for $165K and close in a week. Before the end buyer signed, she expressed that the home had a TON of problems and wanted a discount to fix them. I told the wholesaler that I wanted to walk away with $10K profit and the rest is his so whatever he negotiates is on him. He said okay and told the buyer he could sell it to her for $162K.

Normally this is a GREAT DEAL! however I didn't know the process that HUD homes go through, so I told the wholesaler that I needed a few days to clear title. I quickly found out, HUD does not work on your time frame..lol During the process, in the second week, the buyer was getting impatient and wanted to close ASAP. I found out that we were not going to close for another 2 weeks and relayed that to the wholesaler. The buyer understood but started to question if this deal was legit. Since we did secure a $2,000 earnest deposit at least my risk was covered if the buyer bailed. At this point the buyer reached out to me and said they felt like the wholesaler was not being honest with them and wanted out of the deal.

I asked her a series of questions to calm her down and to get back on board with going through the process of buying the home. To summarize it, she just didn't understand why it was taking so long since she was paying with cash. by this time I understood the HUD process and explained it to her full disclosure. After speaking with her, she sounded like an older Russian lady that spoke very good English but was pretending she didn't understand the numbers to work a better deal.

A Week before closing the wholesaler calls me and tells me he does not want to deal with the lady anymore because she keeps asking for a discount to take care of the problems in the house (some plumbing and cabinets needed to be replaced, est. $4,500). I found out later the the wholesaler was taking the buyer from his wholesale company to try and make some money on the side without his company knowing...

I call the buyer and calmed her down again, and I asked her what more can we do to make this house your home? She said, "It needs a TON of work and I want the $4,500 to make repairs." I said, "Okay, so if I'm hearing you correctly, I you can buy this house with a $4,500 discount off the original price, you would sign the addendum and close?" She said yes and we worked the addendum to show a sales price of $161,500.

By this point the wholesaler asked me to handle the deal and just pay him on the HUD-1. When the buyer received the addendum, again she pretended she didn't understand me and wanted to pull out or get a discount off of the $162K... At this point you can see the wholesaler is losing a great deal of profit. I spoke to the wholesaler and told him what was going on and gave him the opportunity to protect his profit. He was so done with this lady that he said, "Dude I don't care what you do, just make it up to me on the next one."

I said okay and reached out to the buyer and said to her again, "So if I'm hearing you correctly, if you can buy the property will a discount off $162K you will sign the addendum and close on the day of closing?" She said yes! I called her back in 3 hours and said, "If we give this property to you at $158,000 you will have to pay all closing cost buyer/seller." She said okay. 2 days before closing she gets the HUD-1 and FREAKS out. "$6,000 in closing cost?!!!" she said. " I am not coming to closing!!" "You are a BAD person!!!" and she hung up the phone... It was the worst situation to be in because I didn't have a back up buyer and I didn't have a buyer for the TH.

So I called the buyer back and explained to her that we agree she would pay both buyer and seller closing cost. (The reason I did this is to prevent her from trying to ask for another discount. By showing her the high closing cost allowed me to move her focus to getting her closing cost lowered instead of the price.) After she vented for a while, I asked her, "If I can get the seller to pay their closing cost and you not pay more than $4,000 would that work for you?" She replied, yes. After all of that, we finally got to the closing table and closed on the property. In the end, since it was my first deal, I used transnational funding that cost $3,500 and we walked away with $8,600 on the B-C contract + commission of $4,200 on the A-B contract. Since we almost lost the buyer I'd rather have $12,800 then $0.00. How would you have handled this scenario? If you have had something similar happen please share.

You've just described why trying to control a listed property as an unlicensed, middleman is challenging, to say the least.

I'm impressed at how you describe the way you dealt with the end buyer. Use those skills and you'll make a pile of dough!

My suggestion is to become an OFF-MARKET lead generating machine and focus on finding and buying systems. Your skills will be better put to use working with consumer sellers and build a deal flow based on acquisition methods. 

Shifting your efforts to finding principals with big problems that either they cannot solve or will trade equity for someone else to solve is where you'll make real money. Today can be the day that all changes!

Listing properties on MLS could be one of your exit plans, however you ought not be investing your time convincing consumers (end buyers) that a property that needs a little work is a great deal.

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