Exit Strategy for a (possibly bad) Wholesale deal
Investor · Bristol, CT · Member since 2013 · 80 posts · 14 votes
Hello everyone I'm somewhat of a beginner wholesaler and I currently have 2 Unit Multifamily under Contract. What I thought was a good deal after walking through it for rehab cost and pulling comps then going by the 70% rule and calculating my numbers, I'm at a dead end. I put the property under contract with the seller for a set price then went back after realizing an investor wouldn't pay what I was selling it for and was surprisingly able to talk the seller into bringing the price down 5k AFTER the fact we already had the property inked for a set price.
My closing date is coming up fast I'm thinking I may not be able to sell the house. I have roughly 2 weeks to make something happen. I really don't think the seller will be willing to renegotiate the price and I've cut my whole sale fee down to the point where I will barely make any money. Anybody have suggestions?
Kiss this goodbye and stop holding up the owner with BS during the peak marketing time keeping their property off the market!
A 2 unit is not a multifamily so, like the other 32,368 wholesalers out there, you haven't learned real estate before you jumped in with the wheeler-dealer whizbang guru stuff, other wise you wouldn't be in this mess.
What I'm seeing here is:
1. you didn't know the local market
2. you didn't value the property correctly
3. You missed the boat on rehab costs
4. you didn't have a buyer who would be interested before you contracted
5. you entered into a contract you couldn't perform
6. you took the seller's property off the market so they can't sell chewing up their marketing time during the summer months
7. probably put it under contract under false pretenses (you did renegotiate it)
8. you thought a duplex was a multifamily
9. now you'll have egg on your face trying to jump in to do something you don't have enough knowledge about, so you lost this seller as recommending other investors
10. Hopefully, the seller won't sue for breach of contract, even if you had weasel clauses, which will point out your attempt to some judge and the RE Commission.
Wholesalers who don't learn the basics of real estate before trying to follow the guru dream are simply an accident waiting to happen and a public nuisance.
Real estate isn't that hard, but it's not easy either, learn the basics before you begin messing with the public, which adds to the regulators wanting to torch all investors! :)
You can't make a deal where there is none. If you have it locked up for too much then you might just have to tell the owner that your investor fell through and move on to the next house. You can't sell, what you can't sell.
Did you tell the homeowner you would buy the house?
@Derek T. I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
Kiss this goodbye and stop holding up the owner with BS during the peak marketing time keeping their property off the market!
A 2 unit is not a multifamily so, like the other 32,368 wholesalers out there, you haven't learned real estate before you jumped in with the wheeler-dealer whizbang guru stuff, other wise you wouldn't be in this mess.
What I'm seeing here is:
1. you didn't know the local market
2. you didn't value the property correctly
3. You missed the boat on rehab costs
4. you didn't have a buyer who would be interested before you contracted
5. you entered into a contract you couldn't perform
6. you took the seller's property off the market so they can't sell chewing up their marketing time during the summer months
7. probably put it under contract under false pretenses (you did renegotiate it)
8. you thought a duplex was a multifamily
9. now you'll have egg on your face trying to jump in to do something you don't have enough knowledge about, so you lost this seller as recommending other investors
10. Hopefully, the seller won't sue for breach of contract, even if you had weasel clauses, which will point out your attempt to some judge and the RE Commission.
Wholesalers who don't learn the basics of real estate before trying to follow the guru dream are simply an accident waiting to happen and a public nuisance.
Real estate isn't that hard, but it's not easy either, learn the basics before you begin messing with the public, which adds to the regulators wanting to torch all investors! :)
Did you put some skin in the game for this poor owner? Any earnest money involved?
http://www.biggerpockets.com/forums/12/topics/211946-open-letter-to-anyone-who-is-looking-to-get-into-real-estate-investing-through-wholesaling-from-someone-who-is-also-still-learning-also
How did you market the property to buyers? Is all you did was post it to the BP marketplace? If so, there is a major hole in your marketing strategy. Probably one of the first places I would go if you haven't already was a REIA meeting. Usually at some point you can pitch your property to the whole group. You can get live feedback on the good and bad potential buyers see. Has anyone told you where they'd buy it at? Try and ask that question. While BP is a great resource it would be one of the last places I'd go to post a property for sale. Too many relationships in my network that I've developed through REIA meeting and BP to just post online.
@Derek T. I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
And is that true? It sounds like you misled the man.
@John Thedford I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
Why did you do that? That is a lie. Based on what you said, the seller has every right to expect that 2 weeks from now, there will be a closing and they will sell.
This is a really lousy thing to do to someone. The summer is the best time to sell in New England. By keeping this house off the market during the peak of the sales season, you are actively hurting someone who has done nothing wrong (who in fact has worked with you by lowering the price already) and who has a perfectly reasonable expectation that their house is sold.
Go back to the owner, apologize that you will not be able to close, and tear up the contract. Let them get it back on the market.
And please don't do this sort of thing again. I won't trash you because you probably just didn't know what you were doing. But now you do. This is trashy, unethical behavior. Don't do it again.
@Derek T. I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
Darrell, yes, please bow out, but to your "partner approval" (sham),
I can see that you're a young man, not to experienced in business or RE, I'm not hammering you, you're young and getting stared, we were all in your shoes at some point.
Let's discuss some basic law, contract law as opposed to the crap some guru marketing type puts out about "partner's approval".
A partner who contracts is deemed to have the authority to do so, on behalf of a partnership. The matter as to any "approval" by another partner can't be based on a whim of that partner, he is bound by your acts to reasonably agree and if the deal is turned down because of something that was or should have been obvious or known to an astute business dealer, his objection can be overlooked. He also has a reasonable time to object due to unforeseen matters, a timely objection needs to be made, not one that comes a month later.
The weasel clauses used by wholesalers might be good eye wash to a seller, but not all sellers, it's a matter of time when you bump into one who knows better. They can still sue you and when you're sitting on that stand and everything comes out, no real partner, no funds to perform, damages caused to a seller, you're cooked! If you're saying you have a partner, you better have a real partnership agreement in your pocket, otherwise, you're knocking on fraud's door.
After you fail on a deal, seller may very well see a Realtor, if that seller shows his horror story to that Realtor that agent could very well turn it over to authorities, I would. That's not even talking about the seller who's relative is an attorney!
Weasel clauses will not let you weasel out as easily as these beginning, marketing, wholesaling advocates make believe. A judge or jury or an RE Commission will cut through that stuff faster than a hot knife through melted butter. In fact, getting away from the normal contract provisions only strengthens the claims made against you, as you are demonstrating an attempt not to be bound in good faith.
Until wholesalers wise up and learn the basics of RE and the laws they need to abide by and work under, the more harm will be done to the entire wholesaler and investor community.
Just start over and best of luck to you! :)
@John Thedford I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
Why did you do that? That is a lie. Based on what you said, the seller has every right to expect that 2 weeks from now, there will be a closing and they will sell.
This is a really lousy thing to do to someone. The summer is the best time to sell in New England. By keeping this house off the market during the peak of the sales season, you are actively hurting someone who has done nothing wrong (who in fact has worked with you by lowering the price already) and who has a perfectly reasonable expectation that their house is sold.
Go back to the owner, apologize that you will not be able to close, and tear up the contract. Let them get it back on the market.
And please don't do this sort of thing again. I won't trash you because you probably just didn't know what you were doing. But now you do. This is trashy, unethical behavior. Don't do it again.
Richard I quoted the OP. This is a exactly what is wrong with "wholesalers".
I'm always amused that when this kind of thing happens, some know it all BP investor plays the blame game,.....yeah let's blame it on the smart Alec scam merchant GURU.
Yeah it's his fault. None of their techniques work anyway...right? This poor lady is a possible victim of those callous Gurus!! Disgraceful !!
My suggestion to you lady is take your lumps and move on. Be lucky you didn't suffer a huge "seminar" by going thru with it.
My suggestion to you is don't believe everything you read here either. After all, this is just a forum with the vast majority a bunch of wannabes. Full of half baked opinions and theories. With fancy dialogue. Look beyond this place and try to find a mentor who does this thing week in week out.
That's how I got going many years ago. Do NOT feel bad about it. Move on and take this as learning. You just have to get the right knowledge and meet the right people to help you.
Realize that BP is OK but like any forum, has its drawbacks. Don't put all of your eggs in this basket. Experience is a great teacher. Just don't get caught again
Good luck.
@John Thedford I told the homeowner that I work with a partner and my partner helps fund the properties and I'm the acquisition partner.
Why did you do that? That is a lie. Based on what you said, the seller has every right to expect that 2 weeks from now, there will be a closing and they will sell.
This is a really lousy thing to do to someone. The summer is the best time to sell in New England. By keeping this house off the market during the peak of the sales season, you are actively hurting someone who has done nothing wrong (who in fact has worked with you by lowering the price already) and who has a perfectly reasonable expectation that their house is sold.
Go back to the owner, apologize that you will not be able to close, and tear up the contract. Let them get it back on the market.
And please don't do this sort of thing again. I won't trash you because you probably just didn't know what you were doing. But now you do. This is trashy, unethical behavior. Don't do it again.
Richard I quoted the OP. This is a exactly what is wrong with "wholesalers".
I know John, I wasn't directing that at you. I just block quoted what he posted and it tagged you.
I'm always amused that when this kind of thing happens, some know it all BP investor plays the blame game,.....yeah let's blame it on the smart Alec scam merchant GURU.
Yeah it's his fault. None of their techniques work anyway...right? This poor lady is a possible victim of those callous Gurus!! Disgraceful !!
My suggestion to you lady is take your lumps and move on. Be lucky you didn't suffer a huge "seminar" by going thru with it.
My suggestion to you is don't believe everything you read here either. After all, this is just a forum with the vast majority a bunch of wannabes. Full of half baked opinions and theories. With fancy dialogue. Look beyond this place and try to find a mentor who does this thing week in week out.
That's how I got going many years ago. Do NOT feel bad about it. Move on and take this as learning. You just have to get the right knowledge and meet the right people to help you.
Realize that BP is OK but like any forum, has its drawbacks. Don't put all of your eggs in this basket. Experience is a great teacher. Just don't get caught again
Good luck.
No one said anything about gurus. Do you know what the word "projection" means?
And Darrell appears to be a gentleman, not a lady.
I'm always amused that when this kind of thing happens, some know it all BP investor plays the blame game,.....yeah let's blame it on the smart Alec scam merchant GURU.
Yeah it's his fault. None of their techniques work anyway...right? This poor lady is a possible victim of those callous Gurus!! Disgraceful !!
My suggestion to you lady is take your lumps and move on. Be lucky you didn't suffer a huge "seminar" by going thru with it.
My suggestion to you is don't believe everything you read here either. After all, this is just a forum with the vast majority a bunch of wannabes. Full of half baked opinions and theories. With fancy dialogue. Look beyond this place and try to find a mentor who does this thing week in week out.
That's how I got going many years ago. Do NOT feel bad about it. Move on and take this as learning. You just have to get the right knowledge and meet the right people to help you.
Realize that BP is OK but like any forum, has its drawbacks. Don't put all of your eggs in this basket. Experience is a great teacher. Just don't get caught again
Good luck.
Thanks Chris, you mirrored my own sentiments exactly!!! I am a new investor and am educating myself so I can avoid being in this young man's position. I don't think he deserved to be lambasted and am disappointed and disgusted. So to you "know it alls" who felt the need to be so overly critical and judgemental, when was the last time you walked on water? How would you feel if this were done to you? I agree about pointing out the flaws in his plan but it was done in a very negative and accusatory manner. Not at all in keeping with the spirit of the BP site as I understand it. We are here to learn, not be condescended to and ridiculed. You are the reason people won't post.
P.S. before proclaiming perfection, you may want spell/grammar check your posts first.
@Bill Gulley I can say I made a few mistakes but I'm learning as I'm going.
@Steve Vaughan I did put a deposit down on this property.
@Brian C. I used BP to market the property. Also I went to a website where it showed the latest cash buyers around the area who have bought similar properties and sent them a letter. My next step was going to a REIA meeting.
If all you did was post it on BP and get mailing addresses from another website, you haven't adequately marketed the property. You owed the seller a lot more than that. You should have attended as many local REIA meetings as possible. You should have had your own list of potential buyers.
Please, go to the seller today and cancel the contract. And be more honest about what happened.
Try Postlets.com IDK if that is an option where you are at.
I'm not going to beat you up over the situation as it seems like that has been done enough. What you need to do going forward is have MULTIPLE exit strategies. The ONLY way to succeed in Real Estate is by having your closing routes lined up prior to this point.
You need to have access to funds to be able to close if you can't find a buyer. Hard money lender, private lender, line of credit, (traditional mortgage), portfolio lender, or something of that nature.
Don't guess on things you don't know. Add people to your team who are smarter then you. People who know rehab costs, who know the market, and who are active investors. Surround yourself with people that you want to be like.
As far as contingencies go... You should really only be using an inspection contingency (not the bs wholesale one) a real one with a time limit on it. This will give you time to get your team in place and answer questions/confirm your numbers.
If you are going to try to use traditional financing as an exit strategy then use a regular finance contingency. Make sure you understand though that you will have to be able to prove that you couldn't get financed if you can't close. (Meaning you have to try at the very least)
Lastly you really should ONLY put deals under contract that are so awesome you will close on them if you can't find a buyer. If it truly is a deal this shouldn't be an issue. Money is easy to come by if you have a deal.
In closing: I would stay out of 2-4 units until you have more experience. SFR are easier/more commonly moved. You should be looking for vacant/distressed properties. You aren't trying to be a turnkey provider.
@Bill Gulley As far as the contracts and what I was telling the seller, I was just given advice from other wholesalers and investors. So I'm only going off of what I'm taught. I appreciate the advice.
Thanks @Chris Holmes for your input, I'm not the type to use anybody as a scape-goat. I'll take the hit and full responsibility. I'm gaining experience and learning as I go.
Fine, I already knew that, you're not hung and you'll live through it!
LOL, 26 posts here and 33, this isn't nursery school, it's real estate and many of us don't have time to deliver flowers and hold hands with experienced advice.
Newbies need to get thicker skin, if I were new, which I was decades ago, a good knock on the head meant my adviser was keeping me out of trouble, that's my style, keeping newbies out of trouble not appeasing those with less sense who don't recognize good advice. If you're sold on your ideas, look up cognitive bias, your mind will never change, but to those trying to learn, it makes a difference. BTW, please note that there is a button to the left, "ignore" use and and you won't be in reality but in investor guru land, you might get lost in conversations though, dang, there's a down side to everything. LOL
Now, Darrell, it's not personal, blame it on the other Darrell (LOL) and go learn RE correctly. Good luck :)
I'm always amused that when this kind of thing happens, some know it all BP investor plays the blame game,.....yeah let's blame it on the smart Alec scam merchant GURU.
Yeah it's his fault. None of their techniques work anyway...right? This poor lady is a possible victim of those callous Gurus!! Disgraceful !!
My suggestion to you lady is take your lumps and move on. Be lucky you didn't suffer a huge "seminar" by going thru with it.
My suggestion to you is don't believe everything you read here either. After all, this is just a forum with the vast majority a bunch of wannabes. Full of half baked opinions and theories. With fancy dialogue. Look beyond this place and try to find a mentor who does this thing week in week out.
That's how I got going many years ago. Do NOT feel bad about it. Move on and take this as learning. You just have to get the right knowledge and meet the right people to help you.
Realize that BP is OK but like any forum, has its drawbacks. Don't put all of your eggs in this basket. Experience is a great teacher. Just don't get caught again
Good luck.
Thanks Chris, you mirrored my own sentiments exactly!!! I am a new investor and am educating myself so I can avoid being in this young man's position. I don't think he deserved to be lambasted and am disappointed and disgusted. So to you "know it alls" who felt the need to be so overly critical and judgemental, when was the last time you walked on water? How would you feel if this were done to you? I agree about pointing out the flaws in his plan but it was done in a very negative and accusatory manner. Not at all in keeping with the spirit of the BP site as I understand it. We are here to learn, not be condescended to and ridiculed. You are the reason people won't post.
P.S. before proclaiming perfection, you may want spell/grammar check your posts first.
He did something very "negative" and he absolutely deserved to be "lambasted."
He lied. He LIED. He did not make a mistake. He did not get stuck because he didn't know some detail of real estate law or his market. He LIED to the seller.
He may not have realized he was wrong, which is why I at least tried to be gentle. But telling a seller you are an "Acquisition Partner" is a LIE. It is not a "flaw in his plan."
@Sherri Southwell I appreciate your words of encouragement, I have thick skin so I can take it. I would've liked some of the comments to be less discouraging and more uplifting and encouraging. It is what it is. I did what I did with no intent at all to hurt anybody or try to get over on anyone. Just want to make that very clear to everyone. I'm learning as I go and didn't want to get stuck on reading and thinking about taking action. I just took a leap of faith and am prepared to take my lumps and bruises along the way. My apologies if I offended anyone with my honesty on my mistakes as a beginning wholesaler in the real estate world.. Thank you all for your input.
Good luck to you Darrell.
@Richard C. I'm going to need you to relax and not get so into your emotions. I made a mistake and was willing to get positive input from Bigger pockets. That's why I made the post I made. If you're that upset, then you can easily not respond to this Forum, block me or whatever you have to do. We're all grown adults here so there's no need to pass harsh judgment or to keep doing it. I'm going to take everything with a grain of salt, make the best of the mess I'm in and move on knowing I will do better next time. Have a great day guy, because I will.