All Forum Posts by: David Fitch

That makes more sense - you're still buying it if you can't find another investor. So, you aren't backing out on the deal if you can't flip the contract. The value you bring to another investor is an already spec'd deal that they can make money on - just not as much as if they had made the original purchase at the price you signed the contract for.

Any other scenario I can't really see how it would be considered honest. 

Does that mean the wholesaler is being honest about the fact that they are wholesaling? If you skip that step, I'd say you're already in "dishonest" territory. 

So, I'm struggling to see how even the 1% would keep it honest - what seller in their right mind would be ok with signing a contract they know is either: 

• Going to be flipped for more money (which the seller would obviously just want for themselves, if they think there are others out there willing to pay more), OR 
• That the buyer is just going to walk if he/she can't accomplish selling the contract.

Am I missing something? 

This entire concept of wholesaling is a bit scammy to me; I'm frankly amazed that it seems to be as popular as it is. You're entering into a purchase agreement with someone, with no real intent to purchase. What happens if you can't find someone to pay more for the same contract that you signed? Do you just back out? Does the seller know when you're signing as a wholesaler, or do you just take one of the standard "outs" that everyone has in the early stages of a real-estate contract, with no advance notice provided to the seller?

Do I misunderstand the concept entirely?

Discuss.

This entire concept of wholesaling is a bit scammy to me; I'm frankly amazed that it seems to be as popular as it is. You're entering into a purchase agreement with someone, with no real intent to purchase. What happens if you can't find someone to pay more for the same contract that you signed? Do you just back out? Does the seller know when you're signing as a wholesaler, or do you just take one of the standard "outs" that everyone has in the early stages of a real-estate contract, with no advance notice provided to the seller?

He very well might come looking - if he does, direct him to the tow company. It's no different than if he had left his car improperly parked anywhere else. Once a car is towed, there is a process to recover it (usually involving paying fines / fees to the tow company). That process does not involve liability for the person that called the tow company to remove the improperly parked car. 

Perhaps. Regardless, I think my point still stands - she didn't solicit advice, and got bombarded by it - most of it negative. If she's profitable (even if she isn't for that matter), who is anyone else to sling insults about it? She didn't come asking for input on how to avoid her circumstances or be "more" profitable - if she did, then fire away at the obvious blunders. Instead, she seems to think she's doing the community a service by posting about her failures. Seems noble enough to me, even if long-running, ongoing, and entertaining in a soap-opera kind of way; certainly not worthy of the tone directed her at her. 

If she's a real investor (e.g. not just a forum troll), and is truly incapable of making decisions that balance profit with other priorities that matter to her, that problem solves itself - she goes broke. A bunch of random personas on an internet forum aren't going to fix that for her. If she's not, then you get continued entertainment value out of the 5+ pages worth of debate.

Anyway, just my two cents. I also recognize that I'm one of those random personas on said forum and the rest of you aren't going to be swayed by my kind disposition. 

I love how 3 out of every 4 posts in this thread were unsolicited advice to the original poster - she didn't ask you all how she could have avoided the scenario; it's pretty clear she already knows how she could have avoided it. She was posting for investor awareness, pure and simple - another real world scenario of things that can go wrong, for your education. If nothing else, she added value for the rest of us by showing how she handled it, reading the relevant statutes, forcing the police to do their jobs, etc. 

For those of you saying she needs to treat this like a "business" - again, she is clearly doing that. Just because she isn't running it as a business that maximizes every penny at the expense of all other considerations, doesn't mean it's not a business. If she puts in a dollar, and gets back two - she's running a successful business, even if she could have gotten back three dollars by shedding her compassion. 

To the OP - keep doing what you're doing, live by your own rules. I'm personally not as compassionate as you and wouldn't have found myself in this specific circumstance, but I respect the mindset that says f**k you to convention and those sheep that insist the standard playbook is the only way to live.

You'll probably spend a few thousand bucks - assume $5k as a reasonable estimate @ between $200 - $300/hr. However, if you plan to acquire multiple properties with the same group of friends, you can leverage the initial investment in that operating agreement over and over. Assuming you register an LLC for each property (which many investors do), you can just use the same operating agreement for each one.

To give you a ballpark, it probably took us about 20 hours total - maybe 4-5 1 hour long discussions to verbally iron out all of the scenarios we wanted covered in the agreement, and then maybe 15 hours of revision work of my friend's time. All of us work in fields that are highly litigious (lawyers, doctors, finance, etc.), so our minds can conceive of a ridiculous number of things that can go wrong, and the amount of time we spent on the operating agreement reflects that. So, you can get away with less if you want - you can have someone only slightly customize a boilerplate agreement and get away with $1k - $2k, and that might very well be fine for your comfort level. But I highly recommend spending the money to get it exactly right - the difference between $1k and $5k is inconsequential when you're talking about assets worth hundreds of thousands of dollars. 

Short answer: hire a small business attorney to structure the partnership and operating agreement for you so he/she can ask you and your partners all of the right questions, and then build an agreement that reflects what you all agree on. There is a TON of stuff to consider. 

I went through this myself, and I have the benefit of having a lot of attorney friends - a few specifically that work in-house at REITs, so structuring LLCs for purposes of acquisition is basically all they do. 

Here are just a few examples: 

• What happens if one of your partners dies? Are you stuck with a new partner that is whoever the last guy designated to inherit all of his stuff? If not that, how do you value his part of the LLC at that point in time and pay his estate? Will you have the funds to do that? Will you have to take out an equity loan against the house? Will there be enough equity to do that? If not, where will the money come from? Will your operating agreement allow for an equity loan?
• What are the rules around making binding decisions for the company? Will it be that any one of you can do anything, for convenience sake? Or do you need 100% consensus to do every little thing to protect yourselves? Or something in the middle? If so, what is that "middle"? You have to spell it out. 
• What state will you register in, and why? There are pros / cons to registering in either the state that you live, or the state that the property exists, or a state like Delaware that is known to have one of the most well functioning court systems for commercial litigation. 
• Are you sure everyone is ok with an even split? What happens when someone ends up doing more of the work? Have you defined who is doing what? What if one of your partners gets angry over time because a lot of the work falls on him, and sues your company to get more than an even split? There are a thousand ways that could happen, especially if you're vague about who does what - one of your partners could challenge the operating agreement if it's done poorly, and a court might agree.
• What address will you use as the primary location of your business? This gets more complex if you and your friends live in different states because if you choose one of your homes, now one of you has to deal with all of the mail, filing of documents, responding to requests, random other things that have to do with being the registered business address of a company. That adds work to someone's plate - an example of what could go wrong with the even split in the last bullet if you haven't considered all of the "who's doing what" scenarios.
• Are you aware of the things you need to do to protect the "limited liability" part of the structure? Are your partners? Are you all willing to do those things? If not, a court could toss out your liability protection rendering the structure useless, and your personal assets become available. 
• There are a LOT more. Hire a lawyer. 

I'm starting to look for investments in SFHs, condos, etc. to hold for long term rental income.