Got my first wholesale deal! Now how to close it? Yikes!

Got my first wholesale deal! Now how to close it? Yikes!

Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes

Hello All, So I found my first deal! Kept driving by this house that showed the signs and finally got the nerve to speak to the owner. He is an older man (so sweet) who just can't maintain the property anymore. Now here comes the work... I got a GC to come to the house get an exact scope of work for repairs. I originally thought the house would need about $40k for repairs but after speaking with the owner several times, I think it's going to be more. But I don't know what steps to take first, please help! Now my question is, 1) where do I get a purchase and sale agreement WITH an "and/or assign" clause? 2) when I present it to the owner, do I just give him an earnest deposit in his hand? I was told u can give as little as $10. How do I record such deposit? 3) once he accepts the offer (hopefully), then do I send purchase agreement to my Title company ? 4) then do I shop the deal around? I did speak to 1 cash buyer who gave me her specs so I will present to her first. But I will give the cash buyer the assignment agreement to sign. 5) here is the big twist! The owner said he will need about 60 days to move all his stuff and find a new place to stay. Can this time be given to him for this type of transactions? Will a cash buyer be willing to wait that long? Was thinking to tell the owner that he will be responsible for the taxes as long as he stays in the home. 6) how can I protect myself from being swindled if the cash buyer wants to see the house, which mostly he/she will. Will the owner and the cash buyer just try to deal with each other even though I brought them together? So here is the "deal" ARV:$384,600 / it's in a great neighborhood! (6 bedrooms / 3 baths) according to the owner. Offer: 196,812 (384,600*.7= $269,229 - $40K(repairs) - $10,000(estimating closing costs) - $12,408 (estimating realtor fees 6%) - $10,000 (my wholesale fee) The cash buyer could easily make $115,392 from the property. But I need your help with this. Are my steps correct? Kindly advise and many thanks'

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Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes

Hi Nadirah, first of all congratulations! The answers to your questions are as follows;

1.) You can get a Real Estate Purchase contract, or a REP-C from local office supply places, such as Staples. Or you can get them online, I've gotten them off of lawdepot.com in the past. Regardless of if the contract states it is unassignable, you can put "And/or Assigns" in the buyer name, and if he signs the contract it is considered prior written approval. So for example where you would write your name or company name in the buyer field, it would read "Nadirah Dawson and/or Assigns"

2.) You will state in the contract what the ernest deposit amount is. I would recommend $100 if you think you can get away with it. NEVER give the ernest deposit directly to the seller, it goes directly to the escrow/title company with the contract.

3.) Yes it goes directly to the company that will be doing the closing.

4.) After the title company has your contract and ernest deposit you can start finding a buyer for the property.

5.) You'll write in the contract how long escrow is, so if the seller needs 60 days, then I would put the closing date 60 days out + your inspection period. Also write into the contract that your inspection period will start after the seller has completely moved out. This gives you the 2 months plus your inspection period to find a buyer. But if you think the seller will try to break contract when you try to show the property to your buyers, just tell the seller that they are partners of yours, or contractors looking at needed repairs. You must be clear with your buyers that you are under contract for this property, and if they try to cut you out of the deal by negotiating directly with the seller that you will never work with them again in the future. I've told my buyers in the past that they are simply not to talk about terms or price until after they've looked at the house and left the residence. Most buyers understand, and would rather have a good wholesaler who's bringing them lots of deals, instead of saving a few grand on one property and getting X'd off your list.

I don't think i missed any of your questions, and of course these answers are based on my experience here in CA.

All the best!

-Chelsea

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Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
Hi Nadirah, first of all congratulations! The answers to your questions are as follows;
1.) You can get a Real Estate Purchase contract, or a REP-C from local office supply places, such as Staples. Or you can get them online, I've gotten them off of lawdepot.com in the past. Regardless of if the contract states it is unassignable, you can put "And/or Assigns" in the buyer name, and if he signs the contract it is considered prior written approval. So for example where you would write your name or company name in the buyer field, it would read "Nadirah Dawson and/or Assigns"
2.) You will state in the contract what the ernest deposit amount is. I would recommend $100 if you think you can get away with it. NEVER give the ernest deposit directly to the seller, it goes directly to the escrow/title company with the contract.
3.) Yes it goes directly to the company that will be doing the closing.
4.) After the title company has your contract and ernest deposit you can start finding a buyer for the property.
5.) You'll write in the contract how long escrow is, so if the seller needs 60 days, then I would put the closing date 60 days out + your inspection period. Also write into the contract that your inspection period will start after the seller has completely moved out. This gives you the 2 months plus your inspection period to find a buyer. But if you think the seller will try to break contract when you try to show the property to your buyers, just tell the seller that they are partners of yours, or contractors looking at needed repairs. You must be clear with your buyers that you are under contract for this property, and if they try to cut you out of the deal by negotiating directly with the seller that you will never work with them again in the future. I've told my buyers in the past that they are simply not to talk about terms or price until after they've looked at the house and left the residence. Most buyers understand, and would rather have a good wholesaler who's bringing them lots of deals, instead of saving a few grand on one property and getting X'd off your list.
I don't think i missed any of your questions, and of course these answers are based on my experience here in CA.
All the best!
-Chelsea
13 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
Chelsea Tustison Thank You Thank you Thank you! Yes you have answered ALLL of my questions! I so appreciate you. I feel so much better now, like I got a plan But:) when u say go to Staples for the contracts, when I'm in the store, do I just ask a worker or is there an aisle with contracts or something. I know it's problem a dumb question but I just never knew I can get legal docs from Staples! Kindly advise and thank you!
0 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
I will try lawdepot.com now!
1 Reply
Chris Boyd
Realtor · Fort Lauderdale, FL · Member since 2016 · 271 posts · 144 votes
10y
@Nadirah Dawson, congrats! Chelsea gave some good advice. I would just ask, why do you have realtor fees in the equation? Is this a MLS or off market property? The reason I ask is your fee should be higher on this deal IMO. The concept here is that everyone wins, not just your end buyer. If you feel you need help, message me and I'll walk you through some of the particulars.
All the best!
Chris
2 Reply
Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Account Closed Yes the workers there at Staples will know what you mean when you ask for a REP-C
7 Reply
Chris Boyd
Realtor · Fort Lauderdale, FL · Member since 2016 · 271 posts · 144 votes
10y
Pay no attention to some of these so called investors, realtors, agents and the like. Most have no idea the value we bring to the marketplace.
4 Reply
Regina Sitterley
Wholesaler · Marietta, GA · Member since 2013 · 106 posts · 20 votes
10y
Congrats!!! I remember getting my first deal - I felt the same way! And of course, if you sell your contract you will see it through to the close, so naturally you will be helping the seller, who you obviously care about. Here's my input on your questions:
1) where do I get a purchase and sale agreement WITH an "and/or assign" clause? ... I'm in GA, so my contracts might be different. I got mine from an experienced investor who I split my first three deals with. It was so good to have someone with "skin in the game" to call during the whole process.
2) when I present it to the owner, do I just give him an earnest deposit in his hand? I was told u can give as little as $10. How do I record such deposit? .... I rarely give EM, but maybe that's required in NJ? If you do give it, it should be recorded on the contract. The signature verifies that it happened.
3) once he accepts the offer (hopefully), then do I send purchase agreement to my Title company ? ...We use attorneys here. Yes, I send the agreement to them to pull the title work and do the prep for closing.
4) then do I shop the deal around?... I think you can start networking and finding cash buyers now. Why wait? To market the specific property, though, yes - shop it around with pictures, videos, comps, repair estimates, the works, once you have the contract.
5) here is the big twist! The owner said he will need about 60 days to move all his stuff and find a new place to stay. Can this time be given to him for this type of transactions? Will a cash buyer be willing to wait that long? Was thinking to tell the owner that he will be responsible for the taxes as long as he stays in the home. .... This is fine for him to select the closing date. It gives you even more time to market the deal! If the deal is good for the buyer now, it will still be good in two month unless something crazy happens in the market. Yes, the owner will need to keep paying the taxes.
6) how can I protect myself from being swindled if the cash buyer wants to see the house, which mostly he/she will. Will the owner and the cash buyer just try to deal with each other even though I brought them together .... your contract protects you, and your relationship with both people. You can make sure your buyer is a serious and capable investor by requiring proof of funds or preapproval for the purchase price (for hard money) prior to allowing them access.
Hope this helps! You are awesome for taking action! Let the games begin!
4 Reply
Eric Davey
Real Estate Agent · Concord, NC · Member since 2016 · 28 posts · 5 votes
10y
Congrats on taking action, keep networking and you will find your end buyers.
0 Reply
Ryan Goldfarb
Flipper/Rehabber · Jersey City, NJ · Member since 2012 · 204 posts · 109 votes
10y
@Nadirah Dawson - congrats on the progress! Regarding your questions:
#1) If you're in this for the long haul and plan to wholesale frequently, you may find it worthwhile to work with a local attorney who can prepare an appropriate purchase contract for you, even using existing purchase contracts as a template. Doing so will provide an added level of comfort for you that the contract explicitly expresses your intent.
#2) From my experience in NJ, deposits are usual held in a trust account belonging to either the buyer or seller's attorney.
#3) Again, I'd recommend consulting an attorney to ensure that you're going about this the right way here in NJ. Unfortunately, I don't have any additional insight for you on this front, nor would I want to provide anything that wasn't vetted by an attorney.
#4) There's nothing preventing you from shopping the deal around beforehand. Of course, you won't have the security of knowing it's YOURS until the contract is signed. Ideally, you'll have a sense of who your buyer will be prior to entering into contract. If you don't, that will come with time as you build your network of buyers! If you want to get the ball rolling, you can begin presenting the deal to buyers in abstract without divulging details like the address until it's under contract; most investors will understand.
#5) The timing may actually play to your advantage. As was mentioned above, this will allow you more time to find a buyer. In addition, this may allow your buyer time to line up more attractive financing. If you brought me this deal, and I needed to close in 14 days, I'd likely be paying cash or using a HML (neither of which is cheap if it's not my money). If you bring this to me and tell me I have 45-60 days to close, I may be able to line up more attractive, less expensive financing that sweetens the deal for me a bit.
#6) Your biggest protectors here will be your contract and your relationship with your buyers/investors. Most real investors are always looking for GOOD wholesalers. Saving a bit on a deal today by circumventing your wholesaler would be foolish if that same wholesaler could keep your pipeline active in the coming months and years.
I see that you're in EO - is that where the property is located? Feel free to PM me if you're still looking for buyers. I may be interested depending on the location; if not, I may know others who are!
Good luck, and congrats again on taking action!
3 Reply
Ibrahim Hughes
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
10y
congratulations! Now do the due diligence begins. Particularly since your in between a verbal acceptance of your verbal offer and actually getting under contract. The first thing I would do is check that ARV. You have to be careful with the comps up here in the inner cities. I'm primarily talking about East Orange, Irvington and Newark. Many of them are based on the listing agent having a "pocket buyer" and getting both sides of the commission. Our policy is that we don't rely on Comps where the listing agent and the selling agent are the same. We are much more trusting of comps where the buyer came in with their own realtor and therefore had representation that hopefully ran the comps to make sure the house was worth the price the sellers were asking for.
The other thing you want to do when looking at comps 2 wholesale, is to see how much cash investors are paying for properties. Not just how much retail buyers are paying once the property is done. Looking at the price cash investors pay will help you to confirm your arv. It may also help you establish the fact that in a particular area some investors may be using 65% comment 60% or even 50% x arv - repairs. Or perhaps your repairs were grossly understated. A common mistake of newbies is that they look at repairs in the eyes of what can be repaired or painted over verses what should really be replaced. For example, your retail buyer will come in to the home and want a brand new renovated kitchen and bathroom. Not just a bathroom and kitchen that works. Likewise they will want a brand new Heating system and roof and not just one that's functional. The retail buyer's home inspector will actually come in and point out that while the roof is functional and doesn't leak, it's near its 25 - 30 year life expectancy and therefore should be replaced. Your retail buyer will then come back and went to rehabber to give her a brand new roof. This is how rehabbers look at properties when they come in to see if they are going to buy it or not.
4 Reply
Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Originally posted by @Account Closed:

Chelsea,

I am not a troll so be careful. Most wholesalers care only about selling their contract and don't care about the seller where they put the property under contract. An honest wholesaler would try to sell the property.
Selling a contract to an investor is what makes someone a wholesaler.
Selling a property would make her an agent or broker....which she's not.
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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5 Reply
Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Natalie Kolodij
She could always Both buy and sell the property at the same time in a double-closing. This is the method I prefer because my end buyer is only agreeing to my terms, not that of the sellers. Plus my profit is kept confidential and don't like having to renegotiate with a buyer just because they think I'm making too much. Also I can wholesale forclosures, short sales, REO's etc. If you don't have the cash to close on the property yourself, use a transactional lender.
However when starting out I would recommend assigning contracts if possible. It's a lot simpler and will allow her to get the experience she would want before taking on a double closing.
1 Reply
Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
10y
Yes I know how a double close works.
My comment was regarding his reply of her only interest being in selling the contract not the property- I was just saying that in this situation they were one in the same.
If she found a buyer for the contract, she's done her part to "sell" the property.
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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Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Natalie Kolodij I completely agree.
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Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
Wow! This was amazing feedback (I read EVERY response and literally took notes) thanks guys for having my back on this. Ok let me start answering some questions: 1) I was entering the agent fee as I was trying to offset all the costs that the buyer would incur. So that the offer would leave room for all those costs. (I guess that was wrong, I will take that out-thanks for letting me know not to do that) 2) I was scared to put the deal out to buyers until the deal was locked. I want to have all the numbers right so I can build the buyers trust. I did speak to 2 buyers that I got from Craigslist, one specifically said they wanted a house in Bloomfield, hence, my reason for searching for houses in Bloomfield,NJ but she didn't want the cost of repairs to be over $20K. That's why the estimate of repairs is so importatnt for me to get. So when I shop it to the buyers, I have accurate information. When I asked her what was her purchase limit. She said "not to worry about price, just give her a good Deal" I was shocked! 3) I did do comps, got 4 from: searchcomps.com/Zillow/ , Redfin /homesnap. Hope these were reliable sources. The highest with similar specs (6bd/3bth) was $418K... Lowest $317,000. I took the middle value price (not the Listing price) and set the ARV at $384,600. Houses in a 1 mile radius are selling at $499k (3/2) lowest $420K. I do understand that this is market price,hence my reason of offering so low, so the buyers know it's below market price, but whats even better... 4) the house is free and clear! 5) house is in a great neighborhood. Bloomfield, NJ 6) for some reason, no agents wants to walk me through this, I asked 3. I even told them I would give them a $1,000 from my profits as an incentive. 2 referred me to attorneys that own their own Title company so that was a good lead. 7) I called both attorneys and left a message for One and was told by the other they will call me back today but they didn't yet, however was the 2nd was very knowledgeable of this type of transaction so I will call them back tomorrow. 8) finally the seller, the contractor was supposed to come to the house on Friday but had to reschedule, the owner said anytime this week but when I called to meet up with him today, he didn't answer :/ I even went to the house and wrote a letter to try to clear any doubts and left my card. I hope he didn't change his mind. I don't want to be pushy or sound desperate. Like I said in my original post, he is an older man (70'ish) and very kind. We spoke 4 times, all times he was on board. The last time was Friday and now Monday nothing. Wonder if I did something wrong. I will keep you guys posted. Ur advice will not go in vain. I will post that I either assigned this house or another one... Either way, I didn't do all this for nothing. Thanks guys!
1 Reply
Account Closed
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Nadirah Dawson I'm so happy to hear this follow up! Keep working, if the seller was on board in the beginning then hopefully he's just been busy this weekend. Definitely keep us posted on what happens, and ask us any more questions to help along the way.
0 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
@Account Closed, I so appreciate that. I'm nervous and excited all at the same time but I'm ready. Many thanks!
1 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
oh yea @Ryan Goldfarb Thanks Ryan, I will inbox you the information as soon as I lock in this deal. I don't see anything wrong in having several possible buyers just in case. Many thanks!
0 Reply
Jeff Stewart
Woodcliff Lake, NJ · Member since 2014 · 37 posts · 28 votes
10y
@Nadirah Dawson I'm a little late to this thread, but I'm so glad to see the BP community stepping up as always with some solid advice and feedback. I won't retread what was already covered, but I think there are still a couple of things not yet addressed. I hope I can still add a little value!
First, I thought it was perfectly clear that you were including realtor commissions because you were trying to calculate potential profits for your buyer, who we assume will list the home with a realtor after completing the rehab. I think people misunderstood you somehow, but you were on the right track. The only issue I saw was that it seems you didn't calculate the commission based on the ARV, which is what it will be ultimately paid on.
What you didn't account for were any carrying costs. These can be really significant. They often get forgotten - perhaps because they never seem to include them on the flipping shows! These costs will include property taxes (which can be in the range of $1k/month in Bloomfield), utilities, and cost of funds (which will vary quite a bit, but most investors are probably looking at about $2k/month conservatively for a deal of this size). Assuming at least six months between purchase and ultimate closing (including rehab, listing, and escrow), that puts carrying costs in the $20k range.
Recalculating your realtor commissions based on the ARV also makes that about $23k, not the $12k you accounted for.
Lastly, rehab always costs more than you think. As Ibrahim pointed out, retail buyers in Bloomfield will generally be expecting a brand new kitchen and brand new bathrooms, new or refinished flooring, a new roof, etc. With a house of this size, I have a very hard time imagining a successful rehab only costing $40k.
The good news is that it still seems like you've got meat on the bone! If you can get it under contract at this price, I'd say you've got a solid deal on your hands. I'd just caution against telling your cash buyers that you think they could make $115k. Anyone who's done it before (which are the buyers you want) will know that number isn't accurate. They may tend to think that either you don't know, or you are hoping they don't know. Neither is good for you. This is a relationship business, and you want to start on the right foot.
When you're ready to market the property to potential cash buyers, I'd recommend sticking to the basics: ARV, estimated rehab, and purchase price (including your fee). You want to be known as a wholesaler who uses conservative ARVs and realistic rehab numbers. If the deal is really a deal, we'll keep calling you asking for more of them! It looks to me like the classic 70% rule makes this a worthy buy as long as the rehab costs don't exceed $60k.
This turned into a really long post. But I can't end it without saying the most important part: Congratulations! You took action and made an offer. That's more than most people ever do. Give yourself a pat on the back and keep it up.
4 Reply
Jeff Stewart
Woodcliff Lake, NJ · Member since 2014 · 37 posts · 28 votes
10y
Yikes. Seeing it posted, it's even longer than I thought! Sorry about that!
0 Reply
Karen O.
Elkhorn, WI · Member since 2016 · 15 posts · 2 votes
10y
Hi Nadirah,
Just reading this post now and so grateful for all of the good input and suggestions. The support here is awesome. I'm saying a prayer that your buyer doesn't fall through and that all goes well. Keep us posted!
0 Reply
Jeff Stewart
Woodcliff Lake, NJ · Member since 2014 · 37 posts · 28 votes
10y
@Nadirah Dawson I looked at your post again, and I wonder if we've all missed an important point. You said the seller needs 60 days to move, which everyone said could be a good thing since it gives you time to find a buyer. But looking at it again, it seems like you might be in a situation where your seller needs the proceeds of the sale to start making arrangements to move, but can't vacate the property right away. In that case, he'd be looking for a quick closing but a long possession. That's much trickier. If this is really the situation, let me know; I've got a creative solution I can offer.
0 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
Oh wow! @Jeff Stewart thank you, thank you, thank you! Your post was very much needed and not long enough with that type of wisdom you were providing and especially for someone who is known to writing small novels on my post :) Ok, so I totally missed that the agent commission was based on ARV. I was still thinking wholesaling price - thanks! And yes, I heard about the 'fudge' expenses...I should incorporate them in my calculations going forth.
So here's the update....unfortunately guys I never heard back from seller :( . I think I messed up when I kept saying it was me and my partner buying the house. When the seller started asking who my partner was, I knew not to say that I'm a wholesaler and what I'm really doing is shopping your house to be bought....so I simply gave him a name of my well known friend who is actually an investor, he has several properties he holds and has a website just in case he decided to check. I told my friend what I said on the spot and I don't think he liked that either. I'm not good at lying and I don't like it...is there a way to say what I do without scaring the sellers off? I found this post (I will copy and paste it later where he tells the sellers what he does, I love that but am not sure will that hinder my numbers of sealing a deal.
Anyway, I've gone too far to stop now...I went on listsource.com and bought a listing for Essex, Union county cities (SFR, Multi 1-4, last sale date 1950-2006, equity 90-100%, absentee owners AND live-in owner) Side note: I listened to BP podcast who said his return is greater when he adds the live-in owners, can you believe that?! I was always told absentee. Anyway, I created my yellow letter and did my mail merge to send out on Friday...and guess who will be on that mail direct? Yup, my initial wholesale property...(I've been told you send out several post cards to the same house anyway, so I can add him just in case he changes his mind)
Anyway I appreciate @Karen O. for your prayers, (Prayer is powerful thing so I know something good is coming my way- thank you)
@Jeff Stewart see, I told you I write small novels. thanks again guys!
0 Reply
Nadirah Dawson
OP
Investor · East Orange, NJ · Member since 2016 · 33 posts · 12 votes
10y
@Jeff Stewart, yes that was the situation...seller was not in the position to leave right away. He said he had to at least get his things out and find a new place. It was just so much for him, hence, the reason I feel he backed away. I told him that it would be no rush and I would even help him find a new property. I was going to simply have my realtor find a new home that fit his downsized situation. Wife passed, kids are all grown up. But yes that was another set back I thought.
0 Reply
Dustin Verley
Wholesaler · Newark, DE · Member since 2015 · 303 posts · 80 votes
10y
Congratulations on your first deal. Can't wait to read the results. :)
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