Got property under a contract, but now i'm worried.
Rental Property Investor · Burlington, KY · Member since 2017 · 101 posts · 66 votes
Okay, so I got a property under contract, the numbers are phenomenal, and I just got it under contract like not even 8 hours ago. I've been contacted by a cash buyer who wants to pay cash, and close quickly. However, they want to go see the house that I just got under contract for a wholesale deal. I don't want my cash buyer, and seller meeting one another. How do I go about resolving this issue? I want things to go as smooth as possible, but I feel that if the two meet they can swoop the deal from underneath me. Help!
@Aaron Phillips I am not the right guy to give you wholesaling advice. Its not my space so I won't pretend to know the ins and outs of it.
What I can say is that you need to think about the service you provide and to whom you provide it. Wholesalers should add value to the buyer through locating undervalued properties in areas with favorable rental characteristics. They save them time and money by answering big questions about rehab costs, negotiating with owners, figuring out ballpark what it should rent for ect ect.
Looking at it through the lens of only getting deals under contract so you can get your part of the action is what causes this fear of being cut out . A wholesaler who adds value by saving the buyer time doesn't have that problem because that buyer would never dream of doing anything which would jeopardize the relationship; that relationship makes money.
I get that wholesaling is a means to an end for you, but that's no excuse not to treat it like a job.
Actionable advice: Ask the buyer to cut you a check for a finders fee, connect the buyer and seller, and tear up your contract. Then get out of the deal because the two months of reading you've done hasn't prepared you enough to see thing all the way though.
Aaron Phillips it is most certainly not the end of the world. I am a wholesaler/Investor in NC I just recently closed on my first wholesale deal, the thing to do in the beginning is make your options known to the seller, that's right you have options. When I speak to a seller about a property I let them know my options and those options are: I could buy and hold it, fix and flip it, or assign it to another investor and I make sure they understand what assignment means. I then arrange to have a lock box placed on the property in the event that one of these "would be" investors would like to look at it. A lot of times the sellers are motivated and could care less what you do with the property as long as they get what they agree to sell it for. Using the right language in the beginning is key. Even if you can't buy and hold or fix and flip, at least you speak about your intent when it comes to assigning. As an exit strategy to your situation consider looking into transactional funding. If you have an end buyer in place you could possibly do and double close and just pay back the transactional funding loan.
My contract states all of that, including me being able to assign the contract to another investor. It's just people were telling me on here that if I don't have the funds to purchase the property before the day of the closing, and/or had to intentions on buying the property myself then it's considered FRAUD BY INDUCEMENT. I personally want to stay legit, and ethical. If I am committing fraud I want to avoid that at all costs.
@Aaron Phillips even though you messed up at the beginning, it wasnt the end of it!! you should have waited a bit to figured things and exhaust all your options before jumping ship. Based on all the information you've gotten and individuals willing to help I think you could have still succeeded in your first deal, but you panicked & I fear its now going to haunt you negatively!!
@Aaron Phillips even though you messed up at the beginning, it wasnt the end of it!! you should have waited a bit to figured things and exhaust all your options before jumping ship. Based on all the information you've gotten and individuals willing to help I think you could have still succeeded in your first deal, but you panicked & I fear its now going to haunt you negatively!!
I have been thinking the same thing. My contract stated that I have until July 15th to close. However, fear got the best of me. It's a lesson learned, and i'm going to do what someone mentioned earlier and chalk it up to education.
@Aaron Phillips even though you messed up at the beginning, it wasnt the end of it!! you should have waited a bit to figured things and exhaust all your options before jumping ship. Based on all the information you've gotten and individuals willing to help I think you could have still succeeded in your first deal, but you panicked & I fear its now going to haunt you negatively!!
I have been thinking the same thing. My contract stated that I have until July 15th to close. However, fear got the best of me. It's a lesson learned, and i'm going to do what someone mentioned earlier and chalk it up to education.
What? Why? Can you please re-read your original post? (After all, it was just yesterday). If what you wrote is still true, then why are you ALREADY chalking it up to education? At the very least, shouldn't you let your "cash buyer" see the property (regardless of whether it's directly needing the Seller to allow that)? THEN whatever happens can be useful to your continuing education, and it MAY still be profitable for you?
Or, is your fear more related to whether it's a "deal" after all? Seems to me that if it IS a deal, you SHOULD aim to close on it somehow? Cheers...
This exact issue came up on a BP podcast I listed. Too. The guest was a wholesaler of sorts but he said he always closed on the property first and then simply resold it. That way he never had this issue
That's not wholesaling in any way. That's just flipping
The guru garbage promoted on the net never mentions what CAN go wrong. Want to "wholesale". Get funds lined up, close, market and resell. 90% or more of these people representing themselves as "wholesalers" will never make any real money, and many are operating illegally. I see one BP member playing games. They changed their ad to state "we are not brokering this property" when in fact they are. Another one, an outright FRAUD, claimed in a thread he is a licensed agent. When I posted stating there was no record of him as an agent, he got pretty upset, blurted out the typical BS, then proceeded to change his name on his profile to reflect only the 1st initial of his last name and hid his profile. Perfect example of many of these operators..sad to say.
@Aaron Phillips it's not the hard really, just make sure you judge character of your cash buyer accurately. And when you show the house to him, go with him and tell the homeowners that this is one of your contractors. Make sure you tell the cash buyer what's going on too. This way the homeowners still have confidence in you. Who the hell would just let the cash buyer go to the seller directly?!
Honesty though man, you should find the cash buyer that is ACTUALLY flipping houses and structure something with him. Since you wrote that you want to eventually be flipping these, you should partner with him. Take a percentage of the profit and offer to help with renovations. You bring the deal and help the guy out with the Reno. It's a win win. Even if you aren't skilled, you can do cleaning and landscaping or something! Then you will learn how to do a transaction start to finish and things won't get messy with your sellers. You may even make More on the % of the deal than your assignment!
WOW. "Judge the character of your buyer" all the while you are promoting dishonesty!
@John Thedford it's what happened on my first deal. Instead of being TOTALLY HONEST with everyone and let them know that I didn't have the money to purchase (which could have disappointed a lot of people), I was "dishonest". However, I worked my *** off to make sure I took care of the sellers and that everything went smoothly. They were so happy after closing because I did just that. I am not promoting dishonesty but when you are doing your first deal like the OP, you've gotta move forward.
My cash buyer on my first deal is now funding my current deal, two years later. I said judge your cash buyer accurately because he helped me close that first one without hassle for me and more importantly my sellers. It was a great education and now I have money to close each one of my deals vs assignment. I was just trying to help the OP get thru his current dilemma.
John, you gotta chill out a little bit with your caps lock and emotions running thru every wholesale post.
Aaron Phillips it is most certainly not the end of the world. I am a wholesaler/Investor in NC I just recently closed on my first wholesale deal, the thing to do in the beginning is make your options known to the seller, that's right you have options. When I speak to a seller about a property I let them know my options and those options are: I could buy and hold it, fix and flip it, or assign it to another investor and I make sure they understand what assignment means. I then arrange to have a lock box placed on the property in the event that one of these "would be" investors would like to look at it. A lot of times the sellers are motivated and could care less what you do with the property as long as they get what they agree to sell it for. Using the right language in the beginning is key. Even if you can't buy and hold or fix and flip, at least you speak about your intent when it comes to assigning. As an exit strategy to your situation consider looking into transactional funding. If you have an end buyer in place you could possibly do and double close and just pay back the transactional funding loan.
My contract states all of that, including me being able to assign the contract to another investor. It's just people were telling me on here that if I don't have the funds to purchase the property before the day of the closing, and/or had to intentions on buying the property myself then it's considered FRAUD BY INDUCEMENT. I personally want to stay legit, and ethical. If I am committing fraud I want to avoid that at all costs.
I'm not a lawyer and I would suggest getting one because BP is not a law firm but here is my advice to help calm you. So in your contract what is the earnest money you put down? Typically if you don't close that's what you lose. It's a bad way to do business but it's also protects you. You're not committing fraud so long as you are full disclosure with both parties. If you have already corrected your mistake with the seller I would give him your earnest money, rip that contract up, put another contract in place with full disclosure of anything left out, and give him a bigger earnest money down payment. Keep working your deal and don't give up but please find you a good closing attorney or title company. It's so important for so many reasons.
@Aaron Phillips Simply have a discussion with your buyer and let him know that you are wholesaling the deal and then let him know the rules. No discussion of numbers in front of the seller . no Direct discussions with seller regarding numbers. Just the property itself . no exchanging of personal information between your end buyer & seller.
Let him know that you find great deals all the time and that you want to know that you're working with someone you can trust and contact anytime you get a hot deal. If he's a real buyer trust me he will happily abide by your rules with no problem.
I am a wholesaler/flipper in the SF Area. It's a very typical beginner problem. You just wholesale it. I don't see why you can't let those two meet. When they signed the contract with you which mean you and the seller had enter the legal buying/selling contract and seller can't back out of it. If he does, then just turn the contract to the attorney to cloud the title. Seller won't be able to sell until you release it.
However, that would be the last step cuz it will break the relationship between you and the seller.
All of my buyer know I am a wholesaler, so when I show them the house, I told my buyer that he will be my partner and we are not discussing anything when he checking the house out. Only asking the seller about problem of the house if he want to. But no price discussing or anything. If my buyer doesn't honored that, then cross his name out of my buyer list. Buyers will understand and honor it because they want to honor the relationship with you (if you are trustworthy).
From your numbers, I suggest that you do a double closing if possible.
If you have any question, you can call my cellphone anytime. You can look for my number in my profile.
Hope this help!
@Shaun Pruett I was scanning the replies to see if anyone suggested the hard money route before I posted, and ya beat me to it. Yes @Aaron Phillips to alleviate the pressure and make some of the problems you mentioned go away, I would get a hard money lender to quickly close this deal. You'll take a slight hit with points, but you'll sleep better and be more focused rather than worrying. Don't panic man, you'll get this done.
episode 231. Its wholesaling because he doesn't do any renovations
Hang in there, you'll do great. Connect with other investors and buy some education. Hey coaching and mentorship. Find investor friendly sellers and buyers, title agents, attorney etc. If you're going to be an investor then get educated as an investor and keep an investor mindset not as a real estate agent or a real estate agent mindset. You can secure private funding and do better than using hard money. Reiclub, connected investors.com, retipster.com, and remogul.com are good resources too. Crush it!
It has been educational for you, and I both. Learned a lot from other Investors who have already walked the path that I'm currently on.
OK Aaron. I'm glad to see you are taking action. I will try to help.
The last thing you need to do is get yourself in trouble. I will first point out your mistakes in my opinion, then try to give you a solution for them. I'm not giving you hard time I just want you to know Real Word Stuff and not some opinionated words based on how someone feels.
Lets start with the seller. You never lie to them. You should never tell them that you intend to buy the house yourself if you don't. If they directly ask you if you are buying it yourself, and you intend on wholesaling you simply say. "No. I will use a money partner who will provide the funds for the purchase. My objective is to get you the amount we agreed upon through whatever resources I can. There is no way I can make any money unless I can get you the agreed upon amount." That is it. To be honest If you have to do a lot of explaining to a seller about your money, and where its coming from, then you are going into the area of trouble. Work on your phone confidence and pre-screening. You only want to do business with people who are truly motivated. You shouldn't have to do a hard core salesmen closing technique to get a property under contract.
You should also be clear with the seller that you will need to come to the house with different individuals for property evalutions, estimating repairs, and funding needs. Basically the truth.
Remember. You can't stop them from talking to your buyer. Your security is that their contract is with you. There is another form you can have them sign called and affidavit and memorandum concerning real estate that ads a layer of protection to your deal, however If you need that you don't have a motivated seller in the first place.
Also It would be a good idea to set up some transactional funding prior to getting a house under contract. You can get proof of funds from them. Be ready to do a double closing if needed. ALWAYS BE PREPARED TO CLOSE. I don't care what any GURU teaches you. To be honest. If it isn't a deal that you would buy and hold, or fix and flip yourself, then it probably isn't a good deal anyway. That is my rule. Every deal I wholesale is one that I would buy myself if it fit my need at the time.
If you don't know what I'm talking about then you need to do some more homework.
Now lets get to the buyer....
Never do business with any buyer, or anyone for that matter without having a clear meeting of the minds. I personally don't do business with any buyer until I know what level of experience in real estate they have, and letting them know clearly that I will be wholesaling them properties hopefully using an assignment of contract. If that doesn't work I will do a double close. Any buyer who will not take 3 minutes and have a conversation like that with you so you both can understand each other is not someone that you should be doing business with.
You see Aaron, people who REALLY do this business in a moral way have no problem discussing what they do with other people who can help them progress in their business. If you take time and really listen and hear what they are talking about you will learn more about them then you ever realized. Don't be in such a rush to give them the address of the deal. Let them know that you are assigning the contract. Tell them not to discuss price with the seller if you are worried about the seller backing out. In my case. I usually give my buyers a copy of my original agreement with the seller along with my assignment. They already know how I work and what I expect, because I told them.
Wholesaling is not a slick talking, underhanded, sneaky business unless you make it that.
You are not even in the real estate investing business. You are actually in the marketing business, and volume business. Learn how to Market for sellers and buyers. Learn how to Negotiate with sellers and buyers and Learn Basic Sales. Most people in this business never really learn those things. Until they do its not even a business to be honest.
I hope that helped you Aaron. I didn't mean to be long winded, I just like to give real world advice like i said. Hit me up if needed. I'm an open book.
Good luck.
Shouldn't there be a clause in your contract stating that you can market the property, assign the contract and sell it? And another one stating that they're not allowed to sell the property to anyone else while you have it under contract?
I am getting started with Wholesaling and this has been a very educational blog post. Thanks @Aaron Phillips for being open with your experience and thanks to everyone for their feedback, its really helpful in the learning process and how to avoid common mistakes in this particular niche.
Good luck to you Aaron. looking forward to hearing your success story.
I am getting started with Wholesaling and this has been a very educational blog post. Thanks @Aaron Phillips for being open with your experience and thanks to everyone for their feedback, its really helpful in the learning process and how to avoid common mistakes in this particular niche.
Good luck to you Aaron. looking forward to hearing your success story.
Thank you, I appreciate it. This has been a very educational thread indeed. I'm sure a lot of us here has learned a lot by taking the advice of other seasoned RE Investors/Wholesalers.
I would like to provide everyone here with an update on this contract.
1. I have recently talked to the Seller, and renegotiated the contract with him. I let him know there is two options that I am going to do with this property. I am either A. Going to get a loan to buy and hold the property for myself. Or B. I am going to assign the property to another buyer, and help him get the amount he is after which is now $30,000. In my contract it states a few clauses now that I have since added which includes I can back out of the contract at any time if I can not close during the given time frame. I have also added a termite inspection clause because I was informed by other Local Real Estate Investors that they are bad in our particular area.
2. I am going to contact a local title company, and closing attorney that was also referred to me by another local RE Investor. I am going to explain to them what my plans are for this property, and that I will be assigning the contract to another buyer.
3. I am going to contact a few cash buyers that I am already connected with, and hopefully continue working with them for future projects.
Thanks to everyone on this thread that has provided me with advice on how to close on this deal properly, and provided me with the necessary tools to make this deal happen. Special shout out to @Randall Vanfossen for going over and above with providing me with guidance on how exactly I should go about closing on this deal, and referring me to some local closing attorneys.
I can't wait to update you all with my very first sale, once I get this deal closed on! Many thanks in advance.