When dealing with REOS, what are some ways a wholesaler can get around having to front deposit money on the offer to the bank before they assign the contract?
Will, I was attempting to tone down the whole ball busting thing, but your comments make that a very difficult task.
I do agree that most new investors have no idea how much work any real estate strategy is, and they come into it with unrealistic goals of riches and retirement by the end of year. My issue is that exaggerating the perception of difficulty with certain aspects is not necessary. The are plenty of difficult aspects to investing that need no exaggerating, like reading through and understanding the 5,000 page addendum that comes with REO's. :D
It's called hyperbole - a clearly understood exaggeration for effect.
I do think you made an excellent point, Will, when you stated that most new investors don't have a large enough buyers list.
There are two keys to wholesaling. Finding deals and building your investor buyers list. If you don't have many cash buyers then you need to focus on building your list.
The best way to get new wholesalers to do their first profitable deal is for them to focus on building a large investor list of cash or cash equivalent buyers to sell their deals to. In my experience and in the experience of another dozen or so very successful wholesalers I know, focusing on end buyers with traditional financing is futile. There are significant problems with it and you are much better off putting your energy into building your cash buyers list.
From my experience, the two main reasons most wholesalers fail are, first and most importantly, because they don't find enough good deals, and, second, because they don't have enough CASH buyers to sell them to.
1. Is the EMD refundable once made?
2. How much money for EMD do banks typically ask for?
3. If I don't find a buyer to assign or double close with what will happen?
Do either of you gentleman have the answers to my questions. Any input is greatly appreciated.
1. Assuming you have a contingency in your contract that allows you to back out of the deal, then yes, you can get you EMD back.
Generally, a purchase contract will stipulate a certain amount of time for "due diligence." This is the time period for you to do all your inspections, get your contractors out for bids, or if you're wholesaling, to get your buyers out to view the property.
If you back out of the deal at any time during this due diligence period, you can get your EMD back with no penalty (other than potentially pissing off the listing agent and the seller).
2. You probably want to offer a minimum of $500, with $1000 being even better. Some sellers will ask for 10% down if you make an all-cash offer.
Generally, the more you can offer in EMD, the more likely the bank is to accept your offer. In fact, I often offer the entire sales price as EMD if I think I'm up against other others that might otherwise be better than mine (it's amazing how well large earnest money deposits work).
3. If you're within your due diligence period, you can get your EMD back. If you're past your due diligence period, your only two options are to proceed with the purchase (with your own funds) or to back out and lose your EMD.
Normally a 7-10 contingency period for inspections is written into the lender's addendums. You can also put it into your contract as an option period.
A financing contigency is also fairly standard.
Understand that any contingencies in your contract give your offer less value. Obviously, you need to protect yourself with some type of contingency as a new wholesaler but just understand that it weakens your offer.
Thanks a lot fellas. Was hoping to put an offer in asap on several reo's in town. I'm just fretting over the details of the contracts. It's just amazing to me the amount of detail that goes into these things. Wish you could creat your own contract about 1 page long and in plain old english.
Do you use the standard trec contract ryan?
For REO's and any listed property you have to use the TREC. For any other deal I use a simple one page contract.
The TREC is a cumbersome contract to use when buying directly from motivated sellers. They won't understand it and if they have a desire to try, it will take them a day or two to do it. Waiting a day or two to get a contract signed from the seller is never good.
My one page contract is simple and can be read, understood, and signed in 2 minutes, and that's exactly what I want when I'm dealing with a seller directly.
Once again your help is greatly appreciated guys. I may need some help to get the contract filled out correctly and to make it competitive. I hope I may contact one of you for help in exchange for a little commission if the contract is accepted.
Are you working with an agent to put in your offers. The one thing to note about REO offers is that each seller (bank) is going to require very specific contracts. Some of them will take the standard contract and cross things out, add stipulations, and/or add addenda, and if you don't submit the right contract with your offer, you risk having the listing agent or the seller not even consider it.
I would recommend doing one of two things (in this order):
1) Find a buyer's agent to represent you, someone who is experienced in offering on REOs and who can guide you through the process; or
2) Call the listing agent for the property(s), and have him/her submit the offer on your behalf.
Was going to use the listing agent to submit my offer. Just not sure if the agent would fill out the forms for me and act in my best interest.
A couple thoughts:
- Most listing agents would be willing to fill out the contract for you, though a few might require you to do it yourself or have an agent represent you;
- The listing agent - BY DEFINITION - will NOT act in your best interest. They are legally required to act in the best interest of the seller, not the buyer. And you would likely have to sign a contract saying you understand that;
- If you think you need someone to represent you and act in your best interest, I highly recommend finding a buyer's agent who is experienced with REOs. Ask other investors in your area, or perhaps even ask the listing agent to recommend someone.
I agree with J in that if you are not familiar or comfortable with the contract process in TX (or anywhere else for that matter) you should have a buyers represent you as the listing agnet is not on your side, but the seller's.
I often submit offers direct with the listing agent but I am very comfortable with the TREC contracts. I don't personally think they are "cumbersome" but for an individual seller with no representation, they will be overwhelming and possibly scary to them.