Ethical Wholesaling Exit Strategies?

Question

Hey everyone, I'm clearly new to the forum but have found this place to be a trove of information and really love it here. I can't tell if I'm in the "analysis paralysis" stage, or just being careful.

To start, I have chosen my first niche and method (SFH wholesaling) and am ready to begin but do not have a contract drawn up. One of my biggest fears is getting stuck with a property and being taken to court for the full cash amount, which I most likely will not have.

What can be added to a Purchase of Sale and Contact agreement to protect me if for some reason I was unable to find a buyer within an ample amount time? Now I don't intend on making bad deals or cheating anyone, I just would like to hear some ideas for a worst case scenario.

Thanks in advance-

Micah Copeland · Answer

@John C.

I wouldn't worry too much about getting stuck with a house if you can't sell it. An inspection contingency will take care of that. I tend to not like using the contingent on financing clause due to the fact that I state I am a cash buyer and close quick. However, an inspection clause will get you out just fine if needed.

I do recommend never locking a property up that you aren't certain you can close on. Doing so is not fair to the buyer.

Nick Mazzarese · Answer

@John C. I use an inspection contingency in my contract simply stating my ability to close is contingent upon inspection approval.

I have seen others use a financing contingency which states their ability to close is contingent upon financing approval.  In other words , if you cannot find someone to finance your deal ( typically your end buyer) then you are not on the hook to buy the property.

The key here is disclosing this to the seller.  Letting them know that your ability to purchase the property is subject to finding someone to finance your project and if you cannot obtain financing, then the agreement will expire in 30,60, or 90 days or whatever you and the seller agree too.

Rob Beland · Answer

Yes @John C. you certainly have the right to propose such a clause. I'm not really into wholesaling and honestly have only wholesaled one deal. The big flaw I see with wholesaling is that the seller is letting his property go for such a deep discount that once you bring up contingencies does he start second-guessing his decision and look for more money elsewhere...Hopefully there are others on here with more experience that can chime in.

John C. · Answer

Thanks for the reply @Rob Beland. Is it possible to draw up a contract that basically says the contract is void if the deal is not met by X date? In return the seller would keep the earnest money. I understand what you're saying about contingencies. I'd like to make the deal, and transaction as smooth as possible.

Rob Beland · Answer

@John C. unfortunately your biggest fear about wholesaling is the biggest risk associated with wholesaling. You can write whatever protection you want into a P&S but the reality is you are trying to convince a homeowner to let you lock up their property at a deep discount. You then have to find somebody to flip it (the contract) to for a profit. It's not easy. The more contingencies you add, the more likely they are going to be to reconsider working with you at all.