What happens when you can't find a buyer

Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes

Lets say you get a house under contract and you have equitable rights but none of your buyers are interested. And does this happen often?

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Natalie KolodijBusiness Member

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Not if you're getting good deals.

If no one wants it- your deal isn't there.

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Not if you're getting good deals.
If no one wants it- your deal isn't there.
Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
Kolodij Tax & Consulting
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Matt Motil
Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
10y
Shouldn't be afraid of this if you truly have a good deal under contract. If you do, you should be able to find a buyer (or maybe it's not that good of a deal). You could always do the deal yourself. Having multiple exit strategies before you enter into any deal is always wise.
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Mary B.
Real Estate Investor · Lansdowne, PA · Member since 2013 · 1k+ posts · 656 votes
10y
You need to get more details from your buyers on their criteria. Most will rave 'I buy houses for all cash' 'all over the city for any price' but that's not true. Its not that they are trying to mislead you they just want to get on everyone's buyer's list. However, if you bring them any house anywhere in town they won't for certain have an interest. Frustrating to you as a beginning indeed. Have a phone chat with them and get the specifics on price range, zip codes etc. Some are looking for turn-key only, others only want fix and flips and shy away from rentals. You have to put in work. Its not difficult but it will take some using of the noodle. Use the MAO system under analyze above - wholesaling calculator - to help you with the numbers before you present it to your buyer.
Kudos,
Mary
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Tom S.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Account Closed You should be prepared to close on the deal yourself.
- Tom
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Account Closed
OP
Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes
10y
Originally posted by @Natalie Kolodij:

Not if you're getting good deals.
If no one wants it- your deal isn't there.
What is the criteria for a good deal. I don't know the first thing about how houses are priced. Are there ways I can find out?
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Account Closed
OP
Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes
10y
@Matt Motil multiple exist strategies as in release clauses in the contract? Is there such a thing? And what else can I use as an exit strategy ?
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Originally posted by @Account Closed:

Originally posted by @Natalie Kolodij:
Not if you're getting good deals.
If no one wants it- your deal isn't there.
What is the criteria for a good deal. I don't know the first thing about how houses are priced. Are there ways I can find out?
You can learn all of that through searching and reading this forum.
You need to utilize sale records and various comp. sources to see what similar, nearby houses recently sold for. This gets your arv- after repair value
Then you need to learn the skills to accurately pin down how much repairs a house needs to get it to that value.
Then you back into how much you can pay and have it be a good deal. Most flippers look for 50% of arv- some use other requirements.
So if you find a house on off market (through marketing, mailers , signs ect) and you look at nearby similar houses and say they sell for $100k in good shape.
Then you look at what work the house would need to get it to similar condition- lets say $20k
You know the flipper will want the house for 50% of ARV- so he'll want to pay no more than 50% of arv.
Your offer for that house would be close to 50k This gives the flipper potentially 30k profit. This is a good deal by some standards and likely people will want this.
However- if the person wont take any thing under 80k and you put it under contract- there is no deal here because there is no profit for the flipper. This wouldn't be a deal, no one would want to be an end buyer for this./
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Account Closed
OP
Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes
10y
@Mary B. MAO system? Can I start marketing to buyers before I have the contract signed to avoid this delma. For example like emailing my buyers saying "I have a house in this area that im working on getting a contract, anyone interested?".
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Originally posted by @Account Closed:

@Matt Motil multiple exist strategies as in release clauses in the contract? Is there such a thing? And what else can I use as an exit strategy ?
Multiple strategies means what you can do if it doesn't sell.....
See if it would also be plausible for you to hold and rent it
See if it would be a good option for a lease to own situation
See if it could be lived in by you personally while you rent your primary house
You've just got to figure out 3 legitimate, functional back up options in case it doesn't sell.
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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Originally posted by @Account Closed:

@Mary B. MAO system? Can I start marketing to buyers before I have the contract signed to avoid this delma. For example like emailing my buyers saying "I have a house in this area that im working on getting a contract, anyone interested?".
Flippers are buying you because you HAVE a deal. Not to waste their time with might have this...oh nope deal didn't close....That happens once or twice and people will stop working with you.
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Matt Motil
Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes
10y
I typically try and put release language in all my contracts unless I'm positive I have an incredible deal. Something as simple as "subject to acceptable financing terms" could be written in. As long as there isn't a date that the money goes hard, you can always say that the terms were not acceptable. If you have a LLC or partner, you can put "subject to partner approval". Things like this will allow you the option to pull the plug without too much harm.
Other options are to keep the earnest money as low as possible. If you have to pull the plug on the deal, it's better to lose a little on a bad deal that doesn't happen then commit and continue to throw good money after the bad money.
When I look at putting a project under contract, I do analyses on both rental options as well as flipping. If you go in planning to flip and you can't sell, if you knew going in you could rent it at the terms you bought at, then you have a piece of mind that you are protected. You've hedged your risk of not being able to find a buyer once the rehab is done. At the same time, if you are planning to buy and hold and you can't get a renter, but the project works to sell it outright to another investor or end homeowner, then you don't worry about not getting the place rented right away.
Make sense?
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
10y
Originally posted by @Account Closed:

Originally posted by @Natalie Kolodij:
Not if you're getting good deals.
If no one wants it- your deal isn't there.
What is the criteria for a good deal. I don't know the first thing about how houses are priced. Are there ways I can find out?
As @MaryB said above...that comes from your buyers. Find your buyer first, then just fill their orders. You could simply have the right property at the wrong time...whih means it isn't a good deal.
Like the umpire said when the batter questioned a call third strike,
"That may have been a ball yesterday, it may be a ball tomorrow, but today, it's a strike"
1 Reply
Josh Dillingham
Rental Property Investor · Brattleboro, VT · Member since 2015 · 204 posts · 174 votes
10y
Originally posted by @Account Closed:

@Mary B. MAO system? Can I start marketing to buyers before I have the contract signed to avoid this delma. For example like emailing my buyers saying "I have a house in this area that im working on getting a contract, anyone interested?".
If you came to me with this information and it seemed like a great deal it wouldn't take much to find out the exact property you are talking about and make a deal directly with the seller.
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Account Closed
OP
Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes
10y
@Josh Dillingham like you as the buyer stealing the deal or?
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Josh Dillingham
Rental Property Investor · Brattleboro, VT · Member since 2015 · 204 posts · 174 votes
10y
Originally posted by @Account Closed:

@Josh Dillingham like you as the buyer stealing the deal or?
Exactly. Your value as a wholesaler is the fact that you already have a contract that I want. If you come to me and tell me about a great deal that you are thinking of making, you are providing me with all the benefits of a wholesaler but at no cost to me because I can go directly to the source and make an offer on the property, leaving you high and dry.
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Mary B.
Real Estate Investor · Lansdowne, PA · Member since 2013 · 1k+ posts · 656 votes
10y
Originally posted by @Account Closed:

@Mary B. MAO system? Can I start marketing to buyers before I have the contract signed to avoid this delma. For example like emailing my buyers saying "I have a house in this area that im working on getting a contract, anyone interested?".
Ok, but they will want details such as: the address, if its on lockbox? is it vacant? what's the asking price? etc. How can you possibly answer those questions without the property under contract? You can't. You can consult with cash buyers and find out their buying criteria and not just settle for any house anywhere in town for any price. Most won't want to buy in war-zones though some do. You need to know. Often if you don't ask the question you won't know the answer until you have the house under contract and its not what they want at all. MAO (maximum allowed offer) / MOA (maximum offer allowed) same thing.
IMO, you should do some more reading via BP blogs etc and not hit the ground just yet. You need to learn how to properly run comps and the whole nine before you can get into action no matter which niche of REI you choose to venture into - wholesaling is no exception. Take your time and learn the right way first. Don't rush to get it wrong. We all make mistakes but if its avoidable then by all means avoid it.
Kudos,
Mary
2 Reply
Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y
Originally posted by @Account Closed:

@Josh Dillingham like you as the buyer stealing the deal or?
Yes. Also, don't forget that as well as being a silly idea to start marketing a property you don't have under Contract, it is also illegal! (And even when you do have it under Contract, marketing it before owning it can come under very close scrutiny by the Regulators)...
1 Reply
Devin Morgan
Baltimore, MD · Member since 2014 · 91 posts · 49 votes
10y
Someone here on BP said that "you don't make your money when you sell, you make it when you buy" which is absolutely true. As long as your numbers are good you should be fine. If nobody wants to touch the deal you should look at your numbers again.
First thing when running your numbers are look at comps for recent houses SOLD not houses for sale. They can have a bunch of houses on the block listed for sale for 300k but if houses are only being sold for about 150k those are the numbers that really matter.
You should take a contractor with you to look at the house so you can get a feel for what to look for and a accurate repair cost estimate. Eventually you may not need them for walk thrus but starting out at least it's good until you get comfortable doing it yourself.
I'm not really familiar with the aforementioned formula but a relatively easy and popular formula is the 70% rule.
ARV x .7 - repairs= MPP (Maximum purchase price) for an investor. That also means you have to get it under contract lower than that to turn a profit. That rule is only a guideline and it would be wise to include a small buffer. Investors take into account holding cost, closing fees, and overage.
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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
@Account Closed,
This is a classic example of trying to do something before you know how.
At this point, all we can do is see what can be done to salvage the deal.
One of my mentors teaches that there are four levels of Real Estate:
1. Wholesaling
2. Fix-and-flip
3. Buy and hold
4. Money lending.
In your case, if you didn't leave yourself an out and your buyers all beg off, your next choice would be to fix it and flip it yourself. If you still can't sell (BIG red flag!), you can see about renting it out for (hopefully) positive cash flow.
#4 doesn't happen until much later after you've acquired the needed resources, but it is another step up, none the less.
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David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
Originally posted by @Devin Morgan:

Someone here on BP said that "you don't make your money when you sell, you make it when you buy" which is absolutely true. As long as your numbers are good you should be fine. If nobody wants to touch the deal you should look at your numbers again.
First thing when running your numbers are look at comps for recent houses SOLD not houses for sale. They can have a bunch of houses on the block listed for sale for 300k but if houses are only being sold for about 150k those are the numbers that really matter.
You should take a contractor with you to look at the house so you can get a feel for what to look for and a accurate repair cost estimate. Eventually you may not need them for walk thrus but starting out at least it's good until you get comfortable doing it yourself.
I'm not really familiar with the aforementioned formula but a relatively easy and popular formula is the 70% rule.
ARV x .7 - repairs= MPP (Maximum purchase price) for an investor. That also means you have to get it under contract lower than that to turn a profit. That rule is only a guideline and it would be wise to include a small buffer. Investors take into account holding cost, closing fees, and overage.
Indeed: money is made in the buy; you get paid on the sale.
I'd amend that formula to look more like this:
(ARV * 70%) - repairs - holding costs - closing costs - your expected/desired profit = MPP.
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Devin Morgan
Baltimore, MD · Member since 2014 · 91 posts · 49 votes
10y
Originally posted by @David Dachtera:

I'd amend that formula to look more like this:
(ARV * 70%) - repairs - holding costs - closing costs - your expected/desired profit = MPP.
That is absolutely correct. This is the simplest version of how to come up with your purchase price. Thanks!
The only thing I can say is do not deviate from the numbers. If it doesn't fit, don't try to make it. Numbers do not, and will not lie. And always try to be as honest as possible especially with your buyer/ investor. They're supposed to do their own due diligence anyway but you build better relationships if you're transparent instead of trying to hide things or underestimate the repair cost or overestimate the ARV.
I've done tons of research and I have procrastinated long enough. I start my direct marketing campaign next week. Do your research. But don't do so much research you forget to take action.
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Ned CareyPro Member
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Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10y
@Account Closed It seems you know just enough to get yourself into trouble.
You are asking good questions but the answers are not easy. Take some time an learn more about the business. In particular you need to know how to evaluate deals and you need to know your market.
You can learn a lot about evaluating deals here on BP. Do a search and check out the resources under the learn and analyze tabs above.
You only learn you market by going out ad looking at deals. Look at lots of properties, especially other investors deals and have them tell you about them.
1 Reply
Account Closed
OP
Edmonton, Alberta · Member since 2015 · 35 posts · 2 votes
10y
@David Dachtera What are some examples of some exit strategies. Are there ways where you can terminate the contract and just hand the owner back the equitable rights like nothing's happened? Like a deadline for example?
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Brent Coombs
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
10y
You might start by reading some of the 1,417 threads that mention exit strategies:-
https://www.biggerpockets.com/search?utf8=%E2%9C%9...
Cutting and running is not a "strategy", but rather, it means you don't have ANY strategy. Any proper exit strategy will include the concept of having found the funds to buy your purchase if no-one else does.
Otherwise, you haven't even got a proper ENTRANCE strategy! Cheers...
2 Reply
David Dachtera
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
10y
I have to agree with @Brent Coombs.
Again, it looks like you started something you weren't prepared to finish.
While the ambition is admirable, the lack of preparedness is a serious flaw.
It's going to be a "learn by doing" experience, that much is certain. The question is: can you find a way out? Is there some clause in your sales contract which will let you out by its own wording? Usually, the inability to secure financing is an "out", though it may cost you your earnest money unless you handled that up front.
This is something I rarely recommend (though I may want to rethink that now): find a local REIA or other group hosting a "Cash Flow 101" game (Google it) and learn to play that first. It will help you understand better the ins and outs of investing.
Apologies for not being able to offer something more hopeful. I'm not in a position to buy your deal from you or I'd look at it in more detail.
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