How much earnest money to put down on a p&s agreement?

[Daniel Pitta]

(Wholesaling question)

When crafting a purchase & sale agreement with the seller, how much of an EM deposit is customary to put down in order to tie the property up so you can flip it to the end buyer? Also, if you're unable to find a buyer during a 30-day period, how do you approach the situation with the seller that has already agreed to sell you their property? Thanks in advance.

[Jay Hinrichs]

Originally posted by @Daniel Pitta:

Originally posted by @Pratik P.:

Whether I intend on flipping the property or wholesaling I usually put 1k as EMD. Like some here have said, something like $10 won't usually work but it's negotiable.

In regards to your second question, It's pretty simple to me. Be clear and disclose up front that you need some time to find an investor who will provide funding and that you yourself don't have all the cash.....a finance contingency. People use it all the time because not all of us have 300k sitting around. Just don't make it a 30 day contingency, 10 days should be enough time for you to know if you'll have a buyer or not. This is also when you would do any inspections (termite, roof, etc). 

If you back out after that contingency period, then you lose your EMD. That's the point of an EMD.

 Ok perfect, that's the response I was looking for thanks. I just wanted to make sure there isn't any kind of legal issue if I'm unable to find a buyer and don't want to deceive anybody. Not sure why my question received so much vitriol; maybe I should've worded it differently lol...

its  a hot topic here on BP simply becasue of the abuse..

Anytime you have folks running around claiming to be investors.. and needing to buy the home so cheap that unless again its a hoarder house or a very distressed asset  the valuation that the wholesaler gives the owner is quite a bit lower than true market value.. but the oweners simply don't know that and slick sales folks talk them into it.  

I have personally witnessed homeowners losing homes becasue they let someone who had no ability to close and could not resell just walk a few days before the sale and boom house is gone .. lost to foreclosure.

so thats why wholesalers get a bad rap not to mention the methods they use to get into contract which every single direct mail says the EXACT same thing.. I am a cash buyer I will close on a day of YOUR choosing.. only to not close and mess these folks up.

So think of your parents or grand parents and some slick guy or gal talking them into something that is NOT in their best interest financially.. thats why the negativity with wholesaling as its taught.. 

And why those that buy distressed assets ( and i am one) we dont beat around the bush we close on Everything we aim at period end of discussion.. we will treat these as normal escrows.. home inspection  clean title but once that is done.. check on the barrel head the seller can count on.. 

so thats the other side of the coin... as it were... and frankly  speaking if you want to sell real estate and earn fee's the traditional way of being a realtor will in most instance be better served..  you will when you try this have deal after deal that wont work becasue you cant buy it cheap enough.. you will deal with investors that will tell you they have money when they dont.. lots of tire kickers out there.. 

so those are all potential listings.. LISTINGS in todays market are money in the bank...  I remember one young couple down in LA  New Oreleans  Slidel area posting about how excited they were etc etc.. first 2 months they had zero deals but 6 referrals for their broker friend that they get nothing but a thankyou.. Crazy  they should be listing those..   Anyway give it a shot but i think reality check which is what you have had here may show you that its not really feasible in your market.. AND FAR HARDER than you can imagine.

[Jay Hinrichs]

Originally posted by @Daniel Pitta:

Originally posted by @John Thedford:

Either way, signing contracts with no intention of purchasing is FRAUD. Note the guys that say to close no matter what. That is the moral thing to do. 

 But then you're on the hook for a >$100k distressed property. Not exactly an ideal situation. I doubt every successful wholesaler actually closes on the properties they contract in the event that they don't find an end buyer. I feel like if you're honest upfront with the seller and put down an earnest money deposit, setting the correct expectations, it shouldn't be a major issue if you terminate the contract and forfeit the deposit if you can't find a buyer. It's all about being upfront from the get-go and not trying to deceive the motivated seller.

what you will find real world if you lead with honesty.. you will have a very very difficult time getting anyone to go into contract with you.

there is a reason wholesaler lead with the verbiage they do.

If you lead with Hey I am a wholesaler I have no real means to close this deal  .. but i do have 1k... and of course i need to have you mark the property down so an investor who is a bottom feeder will buy it and I need to make a profit as well.. but then I could go through all of that and still no gurantee of anything...  How many folks you think will bite on that one..  they will say screw it I am calling my realtor.. LOL

[John Thedford]

So basically this purchase and sale contract is a de facto listing agreement. No need to beat around the bush! Ripping off owners for tens of thousands of dollars claiming it is a service is another whole argument. 

[Jay Hinrichs]

Originally posted by @Ozzy Jimenez:

dont believe everything on the internet, go out there and see whats possible, not in here with failures 

 I have been funding deals in the lehigh valley now for 4 years

there is no question that some of those little bergs 20 to 30 miles out side of Allentown to the west are ground zero for wholesaling type activities...   I like that area  its very pretty and Bethlehem is cool what they did with the old mill there. 

AS well as i am quite active in the Philly market and that is wholesaler ground zero.. its those areas that wholesaling works pretty well

high value markets not so much.. licensing and laws aside.

[Gary Barella]

Your two questions are minuscule to your bigger problem. Just starting out in DC is like just getting your pilot license and trying to fly a 747. Drive out 40 min in Virginia and start there.

[Michael N.]

Agreed with Gary. Just doesn’t make sense here unless you’re very lucky. You could look to out of state investing. 500k will buy you a terrible house around here, but in other markets could buy you a nicely performing apartment building. Widen your horizons, think outside the box.
Good luck.

[Daniel Pitta]

Originally posted by @Michael N.:

Agreed with Gary. Just doesn’t make sense here unless you’re very lucky. You could look to out of state investing. 500k will buy you a terrible house around here, but in other markets could buy you a nicely performing apartment building. Widen your horizons, think outside the box.
Good luck.

 Any idea where a good starting point would be? Are we talking Loudoun county or further south i.e. Richmond? I am a complete newbie so I'm just trying to get my feet wet but it will be difficult for me to leave the DC area because I have a good job and connections here.

[Jay Hinrichs]

Originally posted by @Daniel Pitta:

Originally posted by @Michael N.:

Agreed with Gary. Just doesn’t make sense here unless you’re very lucky. You could look to out of state investing. 500k will buy you a terrible house around here, but in other markets could buy you a nicely performing apartment building. Widen your horizons, think outside the box.
Good luck.

 Any idea where a good starting point would be? Are we talking Loudoun county or further south i.e. Richmond? I am a complete newbie so I'm just trying to get my feet wet but it will be difficult for me to leave the DC area because I have a good job and connections here.

just a question based on my curiosity and sitting here in Vegas waiting for the NHL game between our team and your team.. well i say our team even though i have only been in vegas weeks but I can bandwagon with the best of them.

If you want to ( what is in essance bringing buyers and sellers together for compensation)  which by the way is you read license law thats verbatim out of every states requirements or definition of needing a license.

regardless have you thought of getting your license working part time since your committed to your area and have connections.  Get on a top producing team and REALLY learn how real estate works.. wholesaling to me is a very advanced strategy and very difficult to pull off and on top of it other than internet chatter back and forth your on an island working on your own.. when your in the real estate industry you have all sorts of support from the better offices.. granted not huge money to get started.. but i have seen those that started on teams over the years end up as agents making 250 to 500k a year no sweat.. and let me tell you 10 years in,  this business gets done almost always on referral NO need to market.. wholesaling is constant marketing and over head.. or just drive around aimlessly knocking on doors.   I dont know.. seems like something to think about .. and those who say it cost money.. well you can't wholesale without spending 5 to 10k minimum per deal.. whereas working on a big team you make 5k per deal with NO money out of pocket other than your gas and business cards and  a few grand for license and such..   Just curious on if you thought that through at all.

[Jason Taliaferro]

@Daniel Pitta I am in the DC area and real estate investing is tough from here but not impossible. DC is a bit of a blessing in that you close to one of the nations highest cost markets but also close to Baltimore and a host of other places in VA and MD that are a lot more reasonable. I agree with everyone else. There is a right way to do things and a wrong way. I am not gonna come down on you even 1k in DC area is cheap earnest money and like everyone else, I do go into a contract without the intention of closing. I prefer to buy and hold because it is a good longterm wealth builder. Also as an unlicensed(non-real estate agent) wholesaler, you are really skirting actual laws (you cannot sell real estate on behalf of someone else if you are not licensed) that can get you into serious trouble and fined.

[Ozzy Jimenez]

actually forget it

Do your research, We got salty Real estate agents in here

[Brandon Ingegneri]

On a standard deal, I would say between $1000 and $5000.  If it is a larger scale deal or a multifaceted deal, then I would say more. 

[Federico Gutierrez]

Just become a realtor and care for your client not your pocket..my 2cents

[Linda Osborn]

@Daniel Pitta. I agree with several in here...if you want to learn wholesaling, find someone who does it successfully in your area by attending local REI meetings and use them to learn and meet people. Find out what people do and what they are looking for. Find someone who can help you learn the business (may mean you have to do work for them), and find other people who buy properties for rehab or buy and hold and use them to build your buyers list. Find out what their "good deal" criteria are. My observation is that if you find a good deal, you will have people coming out of the woodwork to buy it from you. That won't be your problem. Build your buyer's list AND learn what other investors in your area consider a good deal. If you can find what they want...end of problem.

And if you put a contract on a home, you have to honor it. So make sure you have a good list of people willing to pay you to find them a good deal. 

[James Wise]

Originally posted by @Daniel Pitta:

(Wholesaling question)

When crafting a purchase & sale agreement with the seller, how much of an EM deposit is customary to put down in order to tie the property up so you can flip it to the end buyer? Also, if you're unable to find a buyer during a 30-day period, how do you approach the situation with the seller that has already agreed to sell you their property? Thanks in advance.

 Daniel don't do this. This is the most un-respectable way to operate in the Real Estate Investment space. If you want to put buyers & sellers together while making a cut become an agent & disclose your commissions. No reason to operate as a bottom feeder.