Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
I am selling my primary residence (fsbo), and instead of fixing it up myself I'm marketing it as-is to local investors (basically wholesaling my own house) becuase I am settling on my new house soon and don't want to extra work or expense right now. So far I've had a lot of intereset. Some low-ball offers, some just below what I owe, and one that will net me about $5K...And that's the one I find myself questioning. Here's why:
Investor said she and partner are paying cash (not hard or private), but still want 30 days to close.
They only want to put down $10 in EM, which I feel let's them walk from the deal REAL easy.
Contract is contingent on inspection (even after walkthrough).
Contract is contingent to (and I quote) "Buyer's Partner's approval".
What do you all think of this?
I'm new to REI and this will be my first sale. I would love this deal to go through but I'm seeing red flags. Am I imagining them, or should I trust my gut on this one?
Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
13y
Ronnie Boyd, I was thinking the same thing so I asked her and she said that she was not looking to wholesale it, but it does have an assignment clause that states that they can assign the contract and be immediately released from all responsibilities, etc. etc.
I asked for $1000 in EM and she said she could meet in the middle. What would a serious cach buyer be willing to put down considering they are going to be purchasing it in a few weeks anyway?
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
13y
Trust your gut, those are the typical weasel clauses taught by the nationial gurus, to wanna be investorswithout money, who want to tie up your property while they try to wholesale it to someone else.
I would be asking for proof of funds, and only after that, they get a seven for inspection contingency. Most cash investors dont need it.
The guys I know locally, and myself, dont need any inspection contingency, except for septic and well if the property has them. On ocassion if there is a foundation, issue or major item I will need one, but they should be short periods. If someone needs more than 7 days, I would be highly suspicious.
Fix & Flip, Wholetailing, · West Columbia, SC · Member since 2013 · 215 posts · 60 votes
13y
This is someone who is going to wholesale your house. These are standard wholesale out clauses. If they don't find a end buyer they walk clean..
I agree with Dell. I would ask for a proof of funds letter. I would ask for 2-3 k earnest money since there is no relationship between you and the buyer
I would also want the POF letter to be from a bank not a transactional funding company etc.
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
13y
Serious cash buyer shouldnt have a problem with $ 1,000. I would say 70% of ours are $1000. $500 is not unusual Maybe 20% of ours, the other roughly 10%, we pay 10% of purchase price. We have been known to put up 10k non refundable, or more at times to let people know we are serious.
Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
13y
Thanks, Dell Schlabach. You hit on my main concern - that they tie up my property and bring my own marketing to a screeching halt while they do nothing for me.
I asked that proof of funds tomorrow morning, and she said it wouldn't be a problem...we'll see.
If I can get POF from her, what would you suggest I ask for to make sure I'm not jerked around?
Dallas, TX · Member since 2011 · 308 posts · 59 votes
13y
Make sure the POF is a bank statement in their name, not some pre-approval letter from a HML.
I would ask them to increase the EMD to at least 1k, preferably 3-5k (shouldn't be a big deal if they are real cash buyers).
I would ask them to shorten the inspection period to 1 week, and to remove the clause about being subject to partner's approval (this is the ultimate weasel clause).
If they can do all that, which I doubt, then you should be good.
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
13y
I would make sure its a real proof of funds letter, many gurus have places online that their students can download "proof of funds" that will never deliver.
if Iits from a local bank, or from an account with their name on it, then maybe you have a legitimate buyer.
If a cash buyer, rehabber, wholesaler was buying, I wouldnt give them more than five days for an inspection and at that point waive all contingencies. I would want to close within two weeks, unless I had a couple thousand non refundable earnest money.
If it was a legitimate buyer that wanted to live in the house, id give them 10days for a real home inspection before waiving the contingency.
Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
13y
Thanks, guys. I'm was nervous that I was over-reacting, but it sounds like I'm on the right track.
I'll let you know how it goes. I asked her for POF by tomorrow morning...which she said would be OK. I'm now half expecting her to screen her calls so she doesn't have to talk with me again.
Real Estate Investor · Oklahoma City, OK · Member since 2012 · 81 posts · 20 votes
13y
I am a wholesaler myself. From the looks of things these people are wholesalers for sure. If the deal is good enough they may get a HML and close the deal if they do not find a buyer in time. (I have done this myself)
But chances are they are looking to tie up your home while they shop it.
The ultimate goal is to get your home sold for a agreeable price. They will probably assign the contract and get you an investor who can close.
But if you want to wholesale your own home and save $5000- $10000
look for cash buyers who are willing to provide POF and put down a minimum of $1000 EMD.
This is what I require on each deal I assign to cash buyers, it proves to me they are "true" cash buyers.
Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
13y
@John H. , I don't mind wholesalers, they just shouldn't represent themselves as cash buyers who have their own funds if asked. What I would look for is what @Dell Schlabach , @Ronnie Boyd , @Bryce Y. mentioned...POF + decent non-refundable deposit in case they back out. I would also call the bank to verify the funds.
So Here's what went down today...She emailed to say that after discussing it with her partner, that it was not right for them as a cash transaction. She then asked to "buy the property subject to the current mortgage staying in place for 1 year with a 14 day inspection period. We agree to pay you $5,000 upfront at closing."
To be honest, I'm kinda ticked that I drove an hour each way to show her the property yesterday just to have her misrepresent what they could do (after I asked her what her intentions were on the phone). I have some time to kill tomorrow so talked her into bringing her partner to come meet me in person to discuss the options. At the very least, this will be negotiating practice for me.
Anyway, this new subject-to option seems to me like it could be an even sketchier deal than the last. Anyone have experience with subject-tos or know someone on BP who could chime in? What are the main pit-falls from a seller position besides the much talked about DOS?
Where do I start....? I have purchased and sold on wraps, All Inclusive Trust Deeds and Contract for Deeds. Its a great leverage play buying but selling is a challenge, especially if you care about your credit. Do you really want to foreclose on them while making the payments to protect your credit? The potential for them to rent it and skim the rents while not making payments would rank pretty high as a concern. I think they already revealed that they are not shooting straight and you were smart enough to call them out. Why put yourself through the potential headache?
Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
13y
Cut this person loose, right now. Do NOT enter into a sub2 deal. If you do, they get title, and if they don't make the payments you'll be foreclosed on by your bank before you can foreclose on them, your credit gets trashed, and you'll get stuck with a deficiency. They were Obviously trying to wholesale from the beginning. The "subject to partner's approval" is the classic "I'm not going to buy your property, I'm trying to flip it" clause.Do some better marketing, consider using an agent and getting it into the MLS, where it will be seen by everyone, including the investors they were trying to shop it to at a marked up price.
Investor · Brandywine, MD · Member since 2013 · 84 posts · 21 votes
13y
Thanks, @Tiger M. & @Wayne Brooks . I'm not going to take them up on the offer, but it is a chance for me to learn about these things as I go. I want to be able to get some use out of them since they are tyring to pull one over on me.
As for my marketing, I've been marketing to investors and to the retial market on my own. Craigslist, postlets, zillow etc., sign in the yard, FaceBook page & ads, and the BP marketplace. The property has been pickup up by zbuyers (I think that right) and I got two investor referrals for that today alone. I'm getting lots of exposure, but only one solid offer (for 10K less than I owe) right now.
As for agents, I have had several offer to be my lister, and until recently haven't had one propose a plan of action more comprehensive than just putting it on the MLS (which I could do for $150 on my own). I finally found one that is offering to do more than just that, so I'm considering it now.
Dallas, TX · Member since 2011 · 308 posts · 59 votes
13y
Not sure why you'd continue talking with these people as they are clearly misrepresenting their intentions from the get go. If you are so inclined, I'd have a little fun with them and ask for POF of the $5k. They thought 1k EMD was too much, now it's no problem to bring 5k to closing?
This is a perfect example of the problem I have with wannabe wholesalers. Good wholesalers provide a valuable service and are worth their weight in gold, but these wannabes are not only wasting your time and money (you have to make mortgage payments, taxes, insurance while your property is tied up), but they could potentially wreck someone's credit and cost them a lot of money and grief if the seller blindly entered a sub2 deal with them. Ugh...
Cut this person loose, right now. Do NOT enter into a sub2 deal. If you do, they get title, and if they don't make the payments you'll be foreclosed on by your bank before you can foreclose on them, your credit gets trashed, and you'll get stuck with a deficiency.
I'm not sure I'd agree this is categorically true. For example, if you have enough equity in the house you can require a large down payment (10% or 20% down or something like that--you'd want more than $5k) when selling Sub2 and include a remedy in the contract that allows you to reacquire title if they fail to pay. You'd then save enough of the DP to be able to make payments yourself while you reacquire your title and find another buyer.
Using this strategy, you can turn a Sub2 borrower's inability to pay into an advantage instead of a disadvantage (because you end up being able to sell your house twice, the second time with more equity). You also avoid the foreclosure, credit damage and deficiency judgment. Of course, this doesn't create a risk-free opportunity: the house might come back to you with extra damage, etc.
Note that based on the discussion to date, I don't think these buyers would agree to the above. My purpose is to speak in a more general way that a smart Sub2 agreement coupled with significant cash reserves can mitigate some of the aforementioned risks.
In short, get a good RE lawyer with deep experience in creative financing transactions to review your situation and you may find that (if no better options come along) it may be possible to sell via Sub2 with a level of risk you are comfortable with.
Even if Sub-2 was a good solution, I wouldn't enter a contract with this person. They have already miss-represented themselves which speaks to their integrity.
With that said - props! You smelled out a sleezeball and protected yourself against a bad deal. Well done.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
The other option is to enter into the contract with a kickout clause. This basically allows them to get the property under contract, but you can keep marketing it, and if you get a better offer from someone else, you have the right to terminate the contract and move on to your new buyer.
That way, if a new buyer doesn't come along and these guys actually are able to close/assign the contract, you can get the house sold.