Wholesale Deal Structuring

Wholesaling

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Wholesale Deal Structuring

Benjamin Barredo

Wholesaler · Knoxville, TN · Member since 2016 · 247 posts · 76 votes

Hello BP Investors,

I have a straightforward question - unless you somehow are able to make it complicated.

How do you structure your wholesale deals? With the seller and with the buyer?

Example - the seller:

How long to you make the assignment contract good for before you and/or the seller can walk away? 30 days, 90? Do you generally pay earnest money or a deposit? Do you use a one page contract or several?

Example - the buyer:

Do you ask for proof of ability to buy? Approval letters or lender's contact information so you can call them and prove they're real? Earnest money from them?

I just finished watching Phil's video on Freedom Mentor about 'Controlling the Buyer' and it has my brain asking a million questions.

As a newbie, do you suggest I write the pieces of how I plan to structure my deals down, like a checklist? I think I should. I know me and I'll get so excited I'll take verbal agreements on every aspect and find myself standing alone at the title company come closing time.

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P.J. Bremner

Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes

10y

I've listened to nearly all of the podcasts (coming up on 200) and consistently there are people on there that wholesale. Certainly there are plenty of noobies that try to wholesale and end up "playing games" but perhaps it's not always intentional. @Benjamin Barredo is on here asking so that he can do it THE RIGHT WAY. To come back with an answer of "don't wholesale, just buy and hold" would seem to dismiss a portion of the BP population who are legitimately interested in helping people that have no other alternative but to sell their home quickly to investors via a wholesaler. While I agree with you, buy and hold is the way to go, you can't deny that wholesaling can be a means to FUND those buy and holds. I am curious to get your thoughts on my reply @John Thedford?

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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
If you are asking a potential buyer to provide POF what about you? 90 day inspection? My question would be: do YOU intend to close or play games. More homeowners are getting wise to the games unlicensed brokers are playing. Would YOU let someone tie up YOUR house for 90 days? Would YOU ask for POF? Some jokers promote $100 earnest money. Would YOU accept that on your house? If not, why would someone else? The games and garbage promoted by many posters on BP are just that. What to make REAL money? Buy and hold.
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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
10y
I've listened to nearly all of the podcasts (coming up on 200) and consistently there are people on there that wholesale. Certainly there are plenty of noobies that try to wholesale and end up "playing games" but perhaps it's not always intentional. @Benjamin Barredo is on here asking so that he can do it THE RIGHT WAY. To come back with an answer of "don't wholesale, just buy and hold" would seem to dismiss a portion of the BP population who are legitimately interested in helping people that have no other alternative but to sell their home quickly to investors via a wholesaler. While I agree with you, buy and hold is the way to go, you can't deny that wholesaling can be a means to FUND those buy and holds. I am curious to get your thoughts on my reply @John Thedford?
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Pratik P.
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
10y
Let me try to actually answer your question.
Seller side:
-If you're in a hot market like I am where a good deal will go FAST, you shouldn't need more than 30-45 days to complete due diligence and line up a buyer.
- I use a 2 page contract. I also include a clause saying that the property will be resold for a profit. I'm also very clear with the seller that I or one of my investor partners will be the final buyer, so they don't freak out if they see someone else on the papers.
Buyer side
- If you have a good deal (it's a good deal right?) then you should already have control in a hot market. I know my vip buyers will perform so I don't worry about the funds. If I don't know them, I would ask for a refundable deposit with a shorter inspection period (say 20 days). That way if your buyer has to back out, you'll have time to find another.
Feel free to ask more questions. As long as you do things the right way, you'll be fine.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@P.J. Bremner
Anyone wanting to tie up properties for 90 days is playing games. Obviously, they have no intention of closing but have more than likely misled a seller to believe that is their intention. The majority of these unlicensed brokers go into deals with NO money yet they have no problem signing contracts misleading sellers. You can find hundreds of those posts on BP. If someone lacks honesty there is nothing anyone can say to change that. If someone lacks knowledge on how to make deals work and make money there is a lot of that available. Buy and hold? No money? Borrow it...save it, or maybe find a new line of work. Not everyone is destined to make it in RE. I have heard the mantra that these unlicensed brokers are "needed", etc...but I would counter with a question: if the "service" is valuable and "needed" why is there no licensing for it? Answer: they are fringe operators playing loosely with the laws. Many states are clamping down and for good reason!
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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
10y
@John Thedford
I completely understand your frustrations about some people in this business that are after a quick buck at the expense of someone else. It's all well and good to point out everything that is bad, i'm sure it helps those starting out know exactly what to avoid. However, I didn't see you really address anything he asked about as far as offering solutions. I have an interest in this "line of work" because I wish to find off-market deals to flip. If I cannot handle all of the deals I get from my marketing, then the obvious choice would be to wholesale them. I have plenty of cash to invest, a six-figure per year income from my rental portfolio AND have my real estate license. While I agree it is smart to stereotype certain groups of people, I think it is unwise to label 100% of them and dismiss their concerns.
My question back to you is this: do you have personal experience with someone who wasted your time for 90-days? If not, then where does your disdain for this type of deal come from? My purpose is to find out what your hot-bottons are and avoid them at all costs when I go to do my deals. For example, if it takes 90 days or longer to close a deal, then perhaps the person trying to sell the deal didn't get the number right? If you approach me with a home-run, I'm closing on it ASAP. It wouldn't last 1 week on the open market.
Btw, I appreciate your open and candid responses! Great discussion.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@P.J. Bremner the reason there are so many podcasts and other interest in wholesaling is because its the no money get rich quick dream.. its just all dreams.
this leads to the blind leading the blind.. and a lot of pretty messed up transactions .. along with sellers getting damaged
when you say the service is needed... the only place I see it truly needed is in really depressed areas and very cheap areas were homes are really traded more like used cars same price points same quality of folks.. LOL.
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10y
@Benjamin Barredo from your perspective as a wholesaler, the longer the time until closing the better, the less money down the better.
I like short contracts, they are easier to understand and explain. However I have never seen a 1 page contract that covers enough detail if things go sideways. My contract is three pages plus 3 state required addenda.
You need to know that your buyer can close. I would always make sure that you collect more money from your end buyer than you have given the seller.
However while I think @John Thedford is a little harsh and extreme in his position, he is a well respected member here, and makes some very good points to consider. You should not set up an expectation with the seller that you will solve their problem, and then let them down because you cant make the deal happen. You need to Know that you can get the deal closed. how do you know that? Because you know the market & your buyers so well, you know someone will take it off your hands. Or because you know you can close on it yourself.
Many new investors get pumped up by seminars and fast talking pitches. Then they go out and put anything under contract just because the can, and hope it sells for more. That is unethical.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
I have purchased homes from people that were victims of unlicensed brokers. I also have a disdain for liars, cheats, and scammers across any and all industries. Whether people love me or hate me for my posts, I can proudly say there are lots of people that will do business with me on a handshake and take care of formalities after the fact. You don't get that without doing the right thing.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Ned Carey
Buzzword: unethical. Nothing to add to that!
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Ned Carey much of this wholesaling argument can really just be nipped in the bud.. if those that teach these guru tactics.. would simply add a chapter.. in how to find a money partner. and what transactional funding is and how it works..
this would create credibility for the new wholesaler / investor they take title resell.. they work on creating money relationships instead of trying to pimp deals and make middle man fee's as you know money connections are the key to success in the this business long term.. NOT thinking your going to get enough money together wholesaling to all of a sudden have money to buy and hold.
Most wholesalers flame out as we know.. simply its far more difficult than the Podcasts and gurus make it out to be.. and you have no consistant income so your not going to qualify for that buy and hold loan anyway... LOL..
We see it on BP every day.. HI I am Billy Hi I am Jane I am going to wholesale and that will bring me enough money to buy and hold and then quit my day job!!! pretty much happens everyday.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Benjamin Barredo
Benjamin: it is the dishonesty that pervades the unlicensed brokering that IS the problem. As Jay stated, if you have funding, you CAN close. Sellers are not victimized. I hate to see the number of posters stating they have a contract and no buyers. Either they didn't consider the possibility or they don't care. How can anyone go out and sign contracts for tens of thousands of dollars and not have a dime? This baffles me. It is NOT the posters, it is the ideas many put forth as being acceptable. Get funding. Take a JV partner. Find a private lender. Find a hard money lender. One of the best private lenders I have I found by asking a local attorney if he knew anyone. I also have other private lenders that are friends going back over 20 years. Everyone is a potential lender. Once you get someone on board, treat them right and pay as agreed. They will appreciate that and more than likely be willing to fund future deals. I have been able to acquire more properties by having private lenders, with some having funded multiple deals.
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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10y
@Jay Hinrichs yes if the deal had to go through the filter of a lender, many of these bad deals would be shot down before they started.
@John Thedford Why is it unethical to assign a contract but not unethical to close and resell?
I must say that the post of people like Jay, John, @Bill Gulley etc. make me wonder about wholesaling. While I know it can be done in a legal and ethical fashion, there is so much hype that it often isn't done that way. That reflects poorly on the rest of us.
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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
10y
@Jay Hinrichs
That is a great point you bring up about people who "flame out". As a real estate broker, I'm sure you see the exact same thing with real estate agents. And loan officers. And (insert any job title that takes sales skills). I've got plenty of managerial experience to know that sales skill based jobs have an incredibly high turnover. I can only imagine that wholesalers are in the same boat (if not more-so, since they are often self-starters or misguided guru acolytes).
I would like to get your opinion on my idea of what my wholesaling career will look like:
- Find deals with margin in them to flip personally.
- If I have a lack in either funding or man-power to get the flip done, wholesale it.
- Turn a percentage of cash balance from flipping/wholesaling deals into long-term buy and hold.
Assuming a fair price for both the seller and investor can be reached, and assuming the deal doesn't take more than a couple weeks to put into escrow, are you opposed to wholesaling? If so, what alternative to finding deals for flips can you recommend?
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Ned Carey
Assigning a contract is not unethical. I have turned down assignments where I could have made a decent profit. These contracts were not entered into with any aspiration of assignment, but chance conversations with other investors led to offers of assignment fees of 10K, 14K, etc. I had every intention of buying the properties and did close. They have made a LOT more money than the fees I was offered. As a business model though, I believe it borders more on misleading sellers. Anyone signing a contract and being prepared to close if they cannot assign is, at a minimum, not victimizing the seller. That is far better than some of the BP posters promoting BS and deceit to get out of a contract.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@P.J. Bremner you hit the nail on the head... No skills necessary to buy and hold.
advanced sales skills needed to wholesale or assign contracts a little factoid that podcasts and guru's leave out.
I have owned 4 real estate brokerages over the years and as you know.. not everyone can be the otp producer.. and fully 50% of agents don't make it past 12 to 18 months no doubt about that.
with wholesalers your taking it to another level.. they usually have to spend a good chunk of money that they may or may not have.. they lack basic sales skills.. and on top of that not much real estate knowledge.. you add that all up and its not a winning formula.. then you have the collateral damage.
would you want your mother or father in the hands of someone like that..
then you simply have the out and out scammers.. and believe me I have run into my fair share of them.. you need no license you need nothing to go out and tie up property.. this just leads to all sorts of bad things happening.. Are there good one's sure but as long as BP continues to tout the process on Pod casts and bP member promulgate the activity it just amateur hour.. with everyone having an opinion.. and we all know some folks are just out in the left field and only out for themselves financial sociopaths really.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@P.J. Bremner
There are 600K BP members. You only need a handful to fund deals. Post in the marketplace if you find a winner you want to put under contract but don't have the funds. There is a lot of idle cash sitting in banks earning -0-. I get asked for funding on a regular basis due to BP. Unfortunately, I only lend within my state but I am sure you can find others willing to lend out of state or within CA.
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John Chapman
Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
10y
@P.J. Bremner the problem I see with your model is when you say "if I have a lack of funding," I'll wholesale it. I think @John Thedford and @Jay Hinrichs are absolutely correct. As a wholesaler, if you say you are going to buy the home, then you need to have the funding lined up to buy it yourself. Yes, you can assign it or double close it or whatever, but if those options fall through, then you (the "wholesaler") need to step up and close the deal as you've agreed. That's the real problem with all these weasel clauses and silly games that many wholesalers play.
I just wrote a post about a wholesale deal that turned into litigation. The whole thing could have been avoided if the wholesaler could have closed on the deal in his own name and resold it to me.
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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
10y
@Jay Hinrichs
Okay, so if I understood you correctly, it's not wholesaling that you find disagreeable, but the vast majority of the people who partake? So assuming someone is well funded or well connected and can actually move the deal along to help the seller out of a sticky situation, you are okay with that? I ask because I am not new to sales or investing, but definitely not a veteran of the real estate sales side of things. As an broker, I know that your knowledge of the industry is worth more than any of these retarded guru courses and I greatly appreciate you giving your two cents.
My last question is this: do you think there are situations where a retail sales deal may not make sense for the seller, but a wholesaler does? For example, someone inherits an uninhabitable house. They are too embarrassed to have viewings, post it on the MLS etc. so they go for an off-market deal. Would that qualify as a legit wholesale opportunity? Or do you have a scenario in mind that would work?
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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
10y
@John Chapman
That is great feedback. Can you link the post of the wholesale deal gone wrong please? I am very interested in seeing those "worst case scenarios" and how to avoid them.
Also, what the wholesaler approaches the client differently? For example, say I have 2 flips going and the leads keep coming in. It would give me nightmares to throw those leads away! LOL but what if I were to approach the client from a different angle, saying that I currently cannot handle another project, but would still like to help out if possible and structure the deal from the start saying that you will try to find an end buyer through your network of investors? I guess the biggest take-away I am starting to gleen from all of these experienced investors chiming in with negativity (I don't mean this in a bad way!!) is the anyone who wishes to step into the wholesaling arena needs to be 100% transparent about what they are TRYING to do. Am I getting warmer? :)
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@P.J. Bremner EXACTLY I just funded one of those for a BP member that I do some deals for here in Oregon.. and that is EXACTLY the scenario.. but they closed on it.. I put up the money so I know they did LOL... they did not go into contract tell the seller they were going to close and did not have the means to close.. they got my funding approval prior to locking it down.. I am a known quantity on the funding side so when I say go they go.
and this is were I see most that THINK they want to wholesale miss the entire point of being a RE mover and shaker you need MONEY and or MONEY connections.. if you want long term viable business.
Lastly this is highly regionalized as well. short of the scenario were you have a seller that just won't work with a RE broker .. west coast properties wholesalers add ZERO value to a seller they actually in most instances take money from them.. that a competent RE broker would have gotten for them.
I get it in the rust belt and other areas were you have plethora of vacant or crappy homes. and that many times the RE community (brokerage ) just does not want to fool with them... this is where those that want to pimp deals can make money
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Simon Ghandil
Investor · Virginia Beach, VA · Member since 2016 · 90 posts · 49 votes
10y
Treat this like a business, and be 100% transparent. If you do this for a quick buck, you will fail.
I always hold the contract for 30 days. I don't think you should ever need more than 30 days to move a house if you have a good deal. My contract is 6 pages long. I like to be as open as I can and make sure that the seller is on the same page as me.
For my buyers, I don't ask for proof of funds. I know who's reliable and who isn't. For example, I had a buyer call me Friday night asking to see the property I have. He told me he would call me at 11am on Saturday. I heard nothing from him, so I called him, and he told me he would call me around 11am today (Sunday) and I still haven't heard anything from him. Do you think I should even bother with him?
For me, honesty is key in this business. Tell the seller what your intentions are from the beginning, you would be surprised how many folks will let you find a buyer if you are upfront and honest with them. Of course there are some that have major doubts, but you can just follow up with them every couple of weeks to see how they're doing.
TREAT WHOLESALING LIKE A BUSINESS. There is a reason why 90% of wholesalers never close their first deal.
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John Chapman
Investor · Dallas, TX · Member since 2009 · 718 posts · 913 votes
10y
@P.J. Bremner here's the link you requested.
https://www.biggerpockets.com/forums/311/topics/363982-lessons-learned-from-wholesale-deal-turned-into-lawsuit
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Benjamin Barredo
OP
Wholesaler · Knoxville, TN · Member since 2016 · 247 posts · 76 votes
10y
@P.J. Bremner Thanks for speaking the obvious man. I have seen @John Thedford on so many forums just bullying and bad-mouthing people for asking questions. That's the entire point and mission of BiggerPockets.
I would love to buy and hold John but I don't have $10k lying around to throw at deals. I have to build capital somehow and wholesaling is a low cost way to learn the industry while genuinely helping people to find a non-traditional way to sell their homes without paying a pompous broker to juggle their personal home that they hold dear with a countless number of other deals the broker/realtor is also working. There's room for everyone in this game as long as they are honest and playing it straight. I just asked a question for guidance from people that do this for a profession. If you got not actual input except to hide behind your avatar and point the finger at real people who are trying to better their lives as best they can then keep your fingers off the keyboard (shut your mouth).
Again P.J. I've listened to a bunch of podcasts and many of them are wholesalers. @Brandon Turner wholesales John, go ahead and call him out for being dishonest and unprofessional.
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Benjamin Barredo
OP
Wholesaler · Knoxville, TN · Member since 2016 · 247 posts · 76 votes
10y
Thanks @Pratik P. That helps a lot. That's all I was looking for. I have heard 30-45 days is the normal but I've also seen youtube videos (not BP) talking about 90 days and stuff. I thought that seemed a long time. As far as the earnest money from a buyer, that would definitely be for unknown buyers, which in my case is going to be almost all of them unless I know they are players in the area from the local REIA.
Do you put the due diligence on the buyer? I mean, of course I'll do my own to make sure it's a deal, run my own numbers and stuff, but of course I'm not rehabber or contractor so it is still up to the buyer to do their own due diligence, correct?
Honesty with the seller is the upmost #1 priority. I have talked to several home owners and though I haven't closed yet and tell them all during the first call that my goal is to find another buyer and that buyer is usually and investor so the price has to be right. I tell them that out the gate because I'm in no position to buy for myself yet. When I get there I'll add myself to the possibility of buying but for now I let them know I'm the middle man brokering the deal accept I'll cover my own profit and not ask them to pay me a commission, unlike a realtor or licensed broker.
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Benjamin Barredo
OP
Wholesaler · Knoxville, TN · Member since 2016 · 247 posts · 76 votes
10y
@Jay Hinrichs I'm not dreaming of getting rich my friend. But the low money start is appealing to me and I don't want to wait another 5 years to save up the kind of money I need to get into buy and holds. I have been driving for dollars, cold calling, and mailing potential sellers for a month now and I haven't made a deal. So the "quick" part is dead in the water. I understand it's hard work but luckily hard work comes natural to me. I am a Marine and Iraq War Veteran and I am not afraid of the trenches, sir.
@Ned Carey I appreciate your concern about getting "pumped up" but I haven't been to any seminars. I only know what I read and this fire was born from "Rich Dad Poor Dad". I have turned down several deals because I didn't know what I could do with it. I turned down a deal this morning that I couldn't do anything with. @John Thedford might be a well respected member of this community but all I've ever seen from his is negativity and bullying toward newer members that only want to get a little guidance. I have no time for that.
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