Questions about communicating with wholesale sellers and customers are addressed below.
How can you explain what you’re doing to a vendor without angering them? While there are wholesalers who operate in secret and don’t inform their sellers, most prefer to be forthright. How do you approach the vendor, then?
Don’t bother with sellers who aren’t severe in the first place. This is crucial information. Don’t waste your time with uninterested sellers.
In other words, you’re dealing with the wrong seller if they say no to most of your requests. If the seller won’t leave any profit for you on the spread, it’s not worth your effort to buy, flip, or sign the house.
Avoid doing business with vendors who lack drive.
When we sign a contract for a wholesale deal, we usually inform the seller, “Mr. Seller, we’re going to get your house under contract. We have no plans to do any repairs on the property ourselves but rather to get it under contract so that we can assign the contract to someone else.” We want to acquire your property, but not before we’ve had a thorough inspection to ensure there aren’t any surprises. In addition, we’ll be bringing in a financial expert to help fund the property. It’s kind of like a money partner.”
To me, it’s almost like having a partner if they bring in the cash to buy it from me. Since I am bringing in a money partner to buy the land from them, I do not consider it a deception.
I warn the seller that we might be unable to seal the deal if our inspection reveals more work has to be done than we initially anticipated or if our financing team cannot secure the necessary monies. In a few weeks, you will see how things turn out.
One alternative is the method I just outlined. Lara is also correct in that many potential buyers will tell the seller, “Oh, I love your house, and I’m going to buy it.” You can accomplish this if your list of potential customers is sufficiently long. You can do that if the price is reasonable, you have a list of possible purchasers, and you’re confident there will be buyers.
But if you’re still on the fence, follow my advice. Or, if you want to be extra cautious and it bothers you that you might be leading them on, sign an option with that seller and say, “I’d like an option to buy your house. In other words, “if we buy it, we’ll pay you this much and close in 30 days, but there’s a good chance we won’t buy it.”
And all you have to do is explain to them what you’re up to. I intend to acquire an option to purchase your land. In other words, if I want to buy it, we’ll settle on a price, and you’ll agree to sell it to me. After that, I’ll look for someone else to buy it off of me. You’re not dealing with the proper kind of seller if they’re not willing to negotiate, so keep that in mind if they refuse. It’s time to get away. But if they really want to sell the house, most of them will agree.
Then you sign an option contract with them and tell them things like, “Mr. Seller, you can continue to try to sell the house on your own while I’m looking for my buyer,” which is something I do all the time. So if you find a buyer for your house before I do, by all means, sell it; my choice is of no further effect.
But since I am the expert, I can find a buyer for that junker house much more quickly than they can. I recommend going the option route if you have a nice place and are trying to locate a retail buyer who would pay the total price and move in permanently. A property option allows you to find a buyer for the property.
If you’re serious about buying, you should be forthright, the seller should be motivated, and you should have two choices: sign a contract or secure an option. Even if you get a contract, you can still negotiate the terms by saying you’re almost sure to buy the house as long as it meets your needs and your financial partner is on board. Tell them the honest facts and add nothing to it: he must agree to fund the entire project.
It’s also not uncommon to wonder:
Tell me what you’re telling the consumer. What will prevent them from going directly to the seller and bypassing you? And do they pay you in advance or at the end of the deal?
So, tell the shopper what you’re trying to convey. What will prevent them from going directly to the seller and bypassing you?
To begin, the seller and I have an agreement in place. Ensure that the contract states that they may not sell the property to anyone who learned about it from you. This is especially important if you are engaging in an option arrangement in which they retain the right to sell.
One of our customers, for instance, found us through a real estate agent. We were going to get paid, and so was the Realtor. The seller tried to avoid the realtor and us by going to the buyer’s residence. There will be moments when this occurs. If you have investors on your side, this won’t happen. I refuse to use the word “won’t.”
With an investor, it isn’t peculiar. If you’ve discovered an excellent property for that investor, he won’t shortchange you $4 or $5k for your efforts since he’d rather have you find him other properties if you’re good at it.
However, a retail tenant moving in may go around if you’re working with them. Again, you can’t always avoid that, but if you learn about it, you need to address the guy.
Last week I was teaching at boot camp when everything happened, and one of my project managers phoned me to fill me in. The seller had called to let him know that the buyer he had been working with had been by and tried to back out of the transaction, but the seller had told the buyer, “Absolutely not, you’ve worked too hard on this.” Now, thank goodness, we have a competent sales staff.
If the seller had not been willing to negotiate a direct sale with us, we would have called him to inform him that we have a contract and would be filing that contract with the county, which would have required our signature to sell the house. You can make the seller nervous enough to keep you in the agreement without actually filing for bankruptcy by letting him know you’re considering it.
How do you get paid, exactly? It’s a well-known adage: “He who has the money makes the rule.” It’s all about who your customer is. This is how I am compensated for acting as a go-between while negotiating with a financier. We’ll probably perform a simple assignment if he’s paying with cash, a line of credit, or private funding rather than a bank mortgage.
This occurs roughly one-third of the time. The agreement to purchase it from the seller is followed by another agreement known as an assignment of contract agreement, which I sign when I make the purchase. I’ve had as much as $19,000 from a simple task, so it happens. The buyer fills out the assignment form, pays me $3,000 to $5,000 up front, and then independently closes with the buyer. I’d instead sign the assignment contract that would let someone else take our place as buyers, pay me the $5,000 up the advance, and then we could go ahead and purchase the property from the seller.
It isn’t always practical. If the guy has money, it will work. He should incorporate the financing into the closing if he borrows funds from a non-conventional source. Since the lender doesn’t worry about the spices if he’s working with cash, a home equity loan, or a private lender, you can include them in the closing. None of that matters to them.
That $5,000 assignment charge should be written into the contract immediately. Then, you will receive payment at the closure. However, I recommend collecting an earnest deposit to secure the deal and guarantee the charge. We make an effort, at the very least. I don’t care about earnest money if it’s a repeat customer since I know they’ll follow through if they say they will.
An alternative scenario is when they obtain financing from a more conventional source. This complicates matters because the alternative lender will likely require seasoning, while the traditional lender would probably refuse to pay an assignment fee. It is up to the lending institution. But in that situation, the seller pays me to release them from their contract with me so that they can sell it to the next guy, and we all sign a contract to that effect. It also includes a waiver of further legal action. At the closing, I get paid $5,000 or whatever it takes to free them from selling to me so they may sell to the next guy. Additionally, that is effective.
Another instance of this is while selling to a consumer at retail. A conventional mortgage closing is required if you are selling to a buyer who already has one. You will need to execute a double-closing if the amount is substantial or if you have any cause to believe that either the seller or the buyer would not agree to the profit you are earning.
You’ll close and buy it from the seller, and then 15 minutes later, you’ll complete and sell it to the ultimate buyer. Private financing is required for this transaction; a conventional mortgage won’t suffice. Even though we conduct double closings, I attempt to avoid them. You may learn these skills in any good wholesale course. It’s quite simple.
It’s simple if you already have the money to cover the cost. However, informing the title corporation of any changes is standard practice. The primary title companies probably won’t do it, but if you look hard enough, you can locate a title business that will. And basically, you can have the buyer come in first and sign all the papers, then use that money to pay for and acquire the property from the seller. Once again, though, a lot of rides on the buyer. Since the buyer is the one with the cash, we usually comply with his preferred method of operation.
Nick Cifonie hosts Real Estate Investor TV and may be viewed at [http://www.REI-TV.com]. Real Estate Investing Training Videos, CDs, Audios, and More Are Available for FREE Download at http://www.REI-TV.com.