Structuring contract to reduce risk

4 Replies

Hi all,

My partners and I are about to try and execute our first wholesale. Normally we keep all of our projects in house but we're fully tapped out in terms of financial resources with our current projects and the opportunitites keep flowing it.

We've never bought from a wholesaler (we find our own deals) so we've never seen a wholesaler contract or the clauses which reduce the risk to the wholesaler.

Our main concern is "what if I cant find a buyer, is there a way out of the contract?"

Thanks for your advice

Scott

www.spartanhomebuyers.com

Its called your weasel clause. Depending on what philosophy you subscribe to you may be okay with it or you may feel its unethical. Essentially, you're tying up a property with no money for 30-60 days and then, if you don't find a buyer in time, you can back out of the contract with your clause. You'll be able to find plenty of examples on here on how it may be used.

Personally, I've done it, and things fell apart. I went with what the gurus said and followed them step by step but I didn't get a buyer in time. I felt horrible about it, and would not attempt to do the same thing again unless its an absolute home-run deal. 

Why not just negotiate an option contract, that does  not require lying to the seller?

The best way to avoid issues is by being up front with an owner in the first place. Trying to pull fast sneaky deals as gurus put out are a great way to get you nailed acting like you have partners or someone else that must approve you contract or acting as if you can buy when you can't. Dealing with empty houses is much different then having an owner occupied owner packing their stuff expecting you to close as agreed. 

Standard contracts have financing contingencies and inspections required, that should be enough. Weasel clauses are for weasels. 

A seller doesn't care who they sell to, just so long as they can sell at that agreed price. Clear the air up front, Mr. Seller, if I find that this property doesn't meet my investment requirements, I work with other investors, do you care who buys it if we reach an acceptable price? They will say NO! I've never heard a seller say....oh yes, I can't just sell to anyone, only you! Really..... 

Then, after you inspections, you can tell them if you will be buying or if you'd rather give the same deal to another investor, that was your deal! Then if you fail, they know what is going on. They can simply release you to assign the contract.

You can also use options and assign the option, no harm no foul there. 

But don't mislead homeowners with junky guru contracts, you can use a standard contract and use an addendum to address specific agreements. Good luck in the adventure. :)

Hi Everyone,

Thank you so much for your quick feedback.

Just to caveat, we would NEVER consider being anything but truthful to the seller. If that kills the deal, so be it. We're a values based organization and our mission it "to improve lives through real estate" and we do not do anything that would cause us to violate our mission or values.

Scott

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