Wholesaling: I Get It, but I Don’t Understand.

Wholesaling

“I have an understanding of the wholesale thing but it is so foreign to me that i just want to see it done. What happens if: you put an offer on and cant find a buyer? Do you always have to buy funding for a day or can you do it with a simultaneous closing? Do cash buyers know that you are a wholesaler and is there a problem with that? What do you need to know before you start the process? We have missed a couple of houses for rehab because we have no money with which to borrow money and need to do some wholesaling to get some cash.”

So let’s take a stab at answering all of these questions.

Overall, based on the questions, I am going to say that the person doing the asking really does not understand how wholesaling works.  I would direct you to the Wholesaling Tab with in the MAREI Member Library.  I would do a search of the MAREI website for articles posted regarding wholesaling as we have several very beneficial posts.  This can get you a basic understanding.

However, I would really recommend a complete training course on wholesaling and I know of one from Vena Jones-Cox that I would highly recommend.  I can put you in touch with her if you would like to buy the course (unless you are located near where she invest in Ohio – sorry she does not sell her course locally much).

So down to the questions.

“We have missed a couple of houses for rehab because we have no money with which to borrow money and need to do some wholesaling to get some cash.”

I am going to guess that they mean they do not have enough cash in the bank for a down payment on a loan to buy a house.  However if you are buying a house to rehab and then resell, one can quite often find a Hard Money Lender who would fund the deal.  Most will lend up to 70% of the After Repair Value for you to use for purchase, renovations and holding costs.  You do have to have a deal where the numbers work, if they don’t, then you need the cash to make up the difference.  If you need money to make up the difference and you are new at the game, then you probably don’t have a deal to begin with.

“What happens if: you put an offer on and cant find a buyer?”

That is a very good question as many of the newbie wholesalers don’t think about this one and just walk away.  So figuring this out before you go into a deal is a very good thing.  The answer is going to be, it all depends on what you negotiated with your seller.

Some examples:

Can Sell, Won’t Buy:

Once upon a time we had a seller call with a really cheap house in an area where we did not want to buy it.  The seller could not get a Realtor to call him back about listing it and he was desperate to sell it.  We negotiated to purchase the house for something like $3,000.  We negotiated and put into the contract the fact that we had 90 days to purchase the house.  We further added that we were buying this house for the only purpose of reselling the house and if we could not find an end buyer, we were not going to buy it.  We not only had the seller sign this contract, but we had them initial these extra things about not closing if we could not sell it.

Weasel Clauses:

Other Gurus are going to tell you to negotiate your contract and write something in to the fact that “Contract Subject to Partner’s Inspection”.  Their theory is that your partner could be anyone and if you can’t find a buyer you then claim that the house did not pass your “Partner’s Inspection” so you are not going to buy it.

Personally I think this is a big old load of you know what.  Do your homework and know your product and your customer.  Sure go ahead and use an inspection clause, but make sure they have a time frame.  Typically a good time frame for an inspection is 10 days.  Anything longer than that and you send the signal that you are not planning on buying the house anyway.

Option:

These days, when we have a property where the seller is motivated to sell, but we are not to motivated to buy the house we will do one of two things.  First and foremost, if we can we use our status as Realtors and list the property for a commission.  Totally legit, legal and no money out of my pocket.

But sometimes we just don’t want to spend all the time an effort with all the paperwork involved in a listing so instead we turn to the Option Agreement.  This is basically a document between my company and the seller that says for some up front fee that my company has the right to purchase the property at some set amount for a set amount of time.  So it might say that I can purchase the house for $3,000 within the next 30 days, and I am paying $50 for that right or option.  If I can find a buyer, I can then assign my rights in the contract or purchase the property to resell for my profit.  If I can’t find a buyer, I am only out my option fee.

Get Sued

I have yet to see an investor get sued over writing a contract that they walked away from.  However, that’s not to say it has never happened, I have never had it happen to anyone I know.  But with any legal contract, if you say you are going to do something and then you don’t, you could end up in court.

“Do you always have to buy funding for a day or can you do it with a simultaneous closing?”

That will all depend on how you are buying it and the title company you are working with.  If you are using an assignment of contract, where you assign your rights in a contract to a 3rd party for a fee, you don’t need any money.  You don’t actually buy the house or sell the house, you sell your rights to the contract for a fee.  If we are making an amount that I don’t mind my buyer or seller knowing, we often just assign our interest in the contract and walk away with a check for $3,000 to $5,000 when they close.  If you are Vena Jones-Cox, you walk away with that $3,000 to $5,000 when your 3rd party buyer signs the assignment contract – another reason to get her course and attend her bootcamps.

Now if you are making a profit that is more than you really want your buyer or seller to know about, for example you have an almost $20,000 profit coming on a house you bought for $15,000, then you might want to buy the house, own it for a few minutes or a few days, and then sell it again.  Two separate closings.  If you can get all parties to the closing table basically with in the same 24 hour period, then sometimes you can double close and sometimes you will need dough for a day.  This will all depend on the title company you are working with and their policies.  Some will do a dry closing with no money from you and others will require you to close on the property.

“Do cash buyers know that you are a wholesaler and is there a problem with that?”

Yes my cash buyers know I am a wholesaler.  I market all over the place to get cash buyers to sign up on my website as buyers and to tell me what they buy.  If I bring them good deals, they are great.  However if I am bringing them houses they have no interest in or worse yet that have no profit it it for them, then they will have a problem.

So take some time to build your cash buyer list and get to know what your buyers want.

If I am bringing them a deal, they really don’t care what I paid for the house, however if I am making more than $10,000 on a house we typically buy the house with our own or borrowed cash and then we sell it to them.  Quite often we buy the house, clean it out, clean it up and then market it for sale and generate a little bit better profit.

I am going to direct you to a few Videos from Vena that might shed some light and like I said, you really need to buy her Wholesaling Course, which on her site is $1497, however when she was in Kansas last she offered that same course for less and added in some bonuses.  So before you buy directly from her website, get in touch with us here at MAREI as I might be able to save you a $100 or maybe a bit more.

Vena’s Videos