How often can you not find a buyer in time?

Question

I understand the process...thinking of getting into it as another "vehicle" for investing. I'm curious though, how often are you not able to find a buyer in time? What then? Just buy the house and sell it conventionally? In that case, do you only go after properties you could theoretically purchase?

Backing out of the deal would be unethical, right?

Joseph Back · Answer

@Jason Munger Obviously backing out of a deal is never ideal. Our company's philosophy is to never put a property under contract that we wouldn't purchase ourselves. We have a pretty good feel for our market and only had to close on 2 of the 30 deals we put under contract last year. We are able to implement this model by having a strong relationship with the largest hard money lender in our town who is willing to fund our purchases if we are forced to close.

Aaron Stuiber · Answer

Backing out of deals happens and that's why it's so important to be sure of your process to find a willing and ABLE buyer. There are alot of people who claim to have buying power but when it comes down to the real deal they aren't able to close. Make sure you find yourself a really solid and reliable group of buyers that you can pitch properties to on a regular basis.

Don't risk ruining your reputation by getting a contract that you can't fulfill.

Jason Munger · Answer

So that would then mean that you could only put properties under contract that you can/could afford to close on...or at least to maintain a clear conscience that you are doing something ethical.

In theory wholesaling requires little or no money, but you really shouldn't be doing it without cash to close or a pre-approved mortgage for $x that you could tap.

I get it that it may be rare, but at least starting off, you won't have a large, (proven) reliable and buyer network.

Brian Pulaski · Answer

This is the biggest issue those against wholesalers have (I am not against them at all, so long as they are acting ethically). Wholesaling is touted as no money required but keep this in mind. When you are with the seller you are signing a contract to buy their house... and usually you are "buying their house in cash". You are putting a clause in which allows you to assign your position in the contract, but I would argue this assignment was not designed as a real estate strategy, more as a fall back if the buyer who signed had issues closing on the deal. This is my opinion, I could be incorrect.

When you and the seller are hashing out details, are you telling them you are shopping their house to a bunch of "buyers" and have no ability or intention to close? The best wholesalers I know can and do close deals if they can't assign them, to me this is 100% the way to do it. Get a deal set up that works for you, and assign if you can. If not, close and make your deal happen.

Your comment "only put properties under contact you can/could afford to close on" is interesting, because there are a lot of retail buyers who do this and never get funding and the deal dies. With that said those retail buyers are trying to buy a house and they signed the contract assuming the deal would close (or at least not knowing it wouldn't). The wholesaler knows from day one he is signing a contract he can't and won't close (if that is how they run their "business"). I would simply be really cautious signing contracts where you couldn't and made no attempts to close. One deal falls apart and you get a pi**ed off seller and they may go after you however they can.

Brian Pulaski · Answer

If your contract is a purchase contract, then I assume your "backup plan" would be to close on the house? That is what the seller would expect, correct?

Lydia R. · Answer

@Jason Munger I agree with @Aaron Stuiber 100% Having a strong group of buyers/investors is important. Typically if you cant find a buyer for the deal then its not really a deal or you are just not marketing it to real buyers. There are a lot of people out there that claim to be buyers and want to be on your list and will ask questions about a property but they are really just tire kickers.

The overall goal is to only put properties under contract that you know you will be to sell because yes backing out because you dont have a buyer is unethical.

Brandon Krieg · Answer

@Jason Munger - You are correct.  Backup strategies are important.

At this point, if it doesn't work, I will just keep it for myself.  But that is extremely uncommon (to answer your other question).

Jason Munger · Answer

Great responses, thanks!  I was really more asking about what people do when they can't find a buyer, or how frequently this happens.

If could be that you made a error with your calculations or evaluation of the area...or the buyer falls through and you have to find another, etc.

Regardless of how strong your "buyer network" is, you guys have to have a backup plan in case no one steps forward with an offer, right?  When I buy properties for flips or rentals I always have a backup plan.  "If I can't flip this in X days, I'll rent it out for Y months and try again" as an example.

Brandon Krieg · Answer

I agree with @Lydia T. and @Jose Flores generally.

To add another point, don't make offers you think the seller will accept.  Make offers where you KNOW it's a deal IF they accept.

This may seem like a subtle difference, but it's important.  Make offers that make sense based on the numbers.  The seller can accept or reject the offer, it's their choice.  But if you have a contract on a mediocre deal, you are going to have a LOT of frustration and headache trying to get it sold.

If you have fewer offers accepted, but they ALL turn into deals, it is much more efficient.

Jose Flores · Answer

Hey @Jason Munger it’s all a numbers game.  When you pull the comparable sales for that market and you have a house under contract at a lower price then any of those houses listed as recently sold, the house sells it self.  That is why the 5 skills needed to be a Pro at wholesaling are so important. They are marketing; estimating repairs; contracting; appraisals; and negotiating.  Theses skills will help you  fulfill the law of real estate, which is “you make your money when you buy not when you sell”

Last, spend 80% of your time marketing.

Hope this helps. Good luck.

How often can you not find a buyer in time?

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