Real Estate Wholesaling Mistake

I figured I would mix it up this week and share about a deal that I was involved in the just went south and unpack all the lessons I learned.

I was involved in a wholesale transaction A few months ago. I just closed on a relatively expensive property so I had a lot of my money tied up in other deals. With that being said, the best exit strategy was to wholesale the property because that requires “no money down”.

I knew that the numbers made sense, but it was not a homerun deal by any means. There also was some hair on the dealt had to do was some CO/Permit issues that were never looked at in detail (more on this later).

I ended up finding a buyer very quickly with a healthy profit built into the deal. Once we signed the paperwork, I thought we were good to go and this thing was going to be a layup.

One morning I got a call from the buyer that I was planning on flipping this deal too and he told me that after he did some homework (that I did not do), there were several issues with the property that were not accounted for and he no longer was able to purchase. All in all, the deal fell out because of a lack of due diligence that was ultimately my fault, so I want to share my top two lessons I learned.

Lesson #1. Especially when buying a hairy property, try your best to do as much homework as possible regarding anything in the house that might be a little sketchy. For example, with this property, the garage got converted into a room however, there were no permits pulled for the change, therefore, this would’ve been an issue for whoever bought the house because they would have to deal with the building department to get everything fixed and or up to code.

Lesson #2. Never only have one buyer. Once I had this thing apparently sold, I did not have any backup buyers who were willing to take this property in the condition it was in. I relied on one buyer and ultimately it did not work out. If I had a few other buyers interested, it might not have guaranteed the deal would have gone through but it certainly would have increased my odds.

Moral of the story, the more due diligence you can do on the front end, the more knowledge you’re going to have on the backend, and you can save yourself from wasting a lot of time money