Wholesaling: How do you deal with Non-refundable Deposits?

[Cory Baker]

Seeking Information:

Some of the other wholesalers have a $3500 non refundable deposit to contract with them.

Is there a simple work around to this?

I think I saw where someone put down a $10 deposit and a clause that the end buyer would take over the obligation as assigned or something.

Can someone walk us through this.

Lots of wholesalers are emailing me now with potentially good deals but the $3500 non-refund, is a bit of a hurdle. 

[Brian Gibbons]

@Cory Baker

Cory if you're broke you need to be able to find some money to play at the table like in poker

In Wholesaling, you can go direct to the seller with your marketing, get it under contract for $10, and send it to your buyers list. That's the best way to go. 

The problem is it takes a while, and if you need to feed your family, "Wholesaling only" is not the best plan, because even if you have money for marketing, it takes seven times frequency on a mail piece to be effective for a whole saling deal, more than seven times if you have a lot of competition where you live

My advice to you is not to do "Wholesaling only"

Dev [email protected] has awesome videos about marketing directly to sellers, Google search "rule of seven we buy houses"

To do low equity deals

Look at expired listings and go after sellers who can't so because they have no equity but there's no work to be done in the house

Do a lease option assignment and make 3% in 10 hours, just working with the seller and the tenant buyer

[Bill Tyler]

Don't deal with wholesalers that have non refundable deposits like that.  Move on and have them remove you from their contacts.

[Dev Horn]

On wholesale deals, we often get $1000 or more in a non-refundable deposit from cash buyers.  The serious ones we have worked with before, who want the house and have the cash, have no problem with a deposit.  You're talking about closing a deal in 7 to 10 days... It needs to be non-refundable or you might as well not collect it all.  The purpose of the deposit is to ensure the the cash buyer is serious and will likely make it to closing.  If they walk away from the deal after agreeing to buy, leaving the seller and you hanging, it is perfectly reasonable to keep their deposit.  That's the purpose of a deposit.

[Cory Baker]

I tried birddogging such a lead after getting a little more info. Had an acquisition member of an Investing company check it out further. He did. If it had had enough equity he was planning to acquire it and I'd get some of the action. 

Still, I thought some had work arounds for these. Are flex-options used much in these arenas? My network of contacts is expanding and if I COULD hook in some equitable interest... I could market it to them.

[Don Cuffy]

@Bill Tyler How come you don't deal with wholesalers that require a non-refundable deposit? That shows me that you're serious about purchasing. I admit $3500 is a bit much. I require $1000. When I first started out I got burned so many times by buyers who would sign the contract but midway or right before the closing date would back out. A non-refundable deposit gives the buyer more incentive to follow through and I would venture to say that if you're a wholesaler you're crazy if you don't require one

[Bill Tyler]

Maybe it is different in your area. The Dallas/Fort Worth market is very hot and cash buyers grab almost everything they can get their hands on if the number are right.

[Cory Baker]

I had suggested in a lengthy email (with scenarios and examples) to one Wholesaler that maybe a flex- option would work with other wholesalers. If I have an option to purchase that is to expire in 15 days with terms allowing the the seller to continue to market the property while I either fund or find an end buyer, then with that option I could market my interest in the property to another and assign my option to them. JP Moses describes it best. I had to re- research some of it but some use an army of these flex options, or non- exclusive flex options for the wholesaler, and a different contract if done straight to the end buyer.

Anyway, one of those $3500 non-refundable wholesalers has not yet heard of this concept and would like to get together with me soon to discuss it! (This could be awesome.)

I tried a variation of this in Jan. I even recorded my receipt of option consideration as the Wholesaler started to become less and less logical and available... But, that's another story. I at least garnered many contacts from that exercise.

[Cory Baker]

Thanks, everyone. I was just looking back at this thread and see, now some good input, or at least NOW, I understand it better. Maybe, I just need to wait till I've accumulated a little more, cash, connections, and experience before going after those with big non-refundable deposits. I have seen some good ones (potentially-low cost High ARV-when I researched and or was familiar with the area) that have come to my email.

 I'm liking the lease option assignment idea and am learning more on that. But, then too I hear Dodd Frank and SAFE and hit the brakes.

I have located a real estate attorney through AZREIA that will help me get the correct documents for $200. That should embolden me. 

[Brian Gibbons]

Best way for lease option assignments is not to assign but to enter into a lease and option w seller, then record option, then charge an option release fee

[John Thedford]

Non-refundable deposits can be had working through an agent. Non-refundable deposits can line the pockets of unlicensed brokers which could them the incentive to get more like that. Also, in FL, the state says a "resonsable" amount of money is required. $10 on a $200,000 property isn't equitable interest.

[Anthony Beckemeyer]

Feel lucky it's only 3,500. Here in Houston it's crazy I've seen 5k. I get locking up the deal and having some skin in the game but 5k is ridiculous.

[John Thedford]

If only the unlicensed brokers would show the same courtesy to sellers and give them a non-refundable deposit!

[Jeff Copeland]

@Cory Baker - Your question is a little confusing, so I apologize if I misunderstood it. But...

If you want to buy a property from a wholesaler, who cares if the deposit is non-refundable? They already have the property under contract, usually with a very short as-is closing that requires all cash. You pay the deposit, take the buyer's place in the contract, and close whenever the contract says. At this point, they are not looking for other wholesalers to market the property - they are looking for a serious cash buyer who can fulfill the contract terms and bring cash to the closing -  probably within a week or so.

Your question makes it sound as if you want to have them re-assign the contract to you for a minimal, refundable deposit, and then try to re-assign the contract to a fourth buyer. There is little chance of success in trying to "re-assign their assignment of contract".

Most of the serious cash buyers in your market have probably already seen the property and know whether they're interested or not. You trying to market it at a higher price than the "original" wholesaler just shows that you missed out on the original deal (from the actual seller).

[John Thedford]

@Cory Baker

What is your exit strategy? If $3500 is a hurdle at this time, what happens IF you pay it? Then what? Buy and hold or continue to try the unlicensed broker games? You DEFINITELY need an exit strategy on anything. If you lose $3500 then what? Another hurdle to raise more money? Find private lenders, find partners, etc. Buy and hold or buy distressed properties, rehab, and flip until you have enough money saved to move into buy and hold properties. 

[Benjamin Cowles]

Originally posted by @Cory Baker:

I had suggested in a lengthy email (with scenarios and examples) to one Wholesaler that maybe a flex- option would work with other wholesalers. If I have an option to purchase that is to expire in 15 days with terms allowing the the seller to continue to market the property while I either fund or find an end buyer, then with that option I could market my interest in the property to another and assign my option to them.

 When you say "allow the seller to continue to market..." do you mean the wholesaler? Isn't the seller under exclusive contact to sell to the wholesaler?

[John Thedford]

@Benjamin Cowles

The "wholesalers" are pretty much done in this state unless they are licensed. Fl Statute 475.43 put an end to these scammers. You CAN sell a contract but you cannot advertise the property. Seems pretty tough to sell a contract without marketing the property! Even with a contract you cannot market the property UNLESS you are a licensee.

[Benjamin Cowles]

Originally posted by @John Thedford:

@Benjamin Cowles

The "wholesalers" are pretty much done in this state unless they are licensed. Fl Statute 475.43 put an end to these scammers. You CAN sell a contract but you cannot advertise the property. Seems pretty tough to sell a contract without marketing the property! Even with a contract you cannot market the property UNLESS you are a licensee.

Thanks