Potential disaster I need to avoid...

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Potential disaster I need to avoid...

Shannon Webb
Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes

Hi guys!

So, I am new to this Wholesaling game and while practicing my due diligence, I have run across a potential disaster. I live in the state of Georgia. 

I have a deal that i have been working on and have taken time to consider everything i am supposed to and have come up with a solid offer(I believe). While I am still working things out on the seller's end, I've realized that in Georgia, when it is time to close, I will have to have my own funds to do so. So the 100K offer that I want to give the seller, has to come from my pockets first?

I don't have those type of funds no way no how. And while I know this house could easily sell for 170K and that one of my investors would see this as an amazing deal, How do I facilitate it, If I am not allowed to do a double closing? 

Some places I am hearing that there may be title companies that allow it in Georgia. Others are saying double closings completely illegal! (I'm confused about that as well). I am totally stuck on this. I thought this was what wholesaling was about.... Am I wrong?

Does anyone know if there are title companies in Georgia who allow double closings?

I spoke with the attorney over the probate for the estate and know the seller is motivated. I am set to speak with her next week, and yet I no longer know what my options are. Please help me guys... I feel like I've hit a brick wall.

Thanks in advance!

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Guy Gimenez
Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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@Shannon Webb

Assignments are a great way to make quick money, but an assignment is a contract, not unlike a purchase contract, so both the assignor and assignee must understand contracts and contract law or they can easily get deep into poo poo that can harm them financially for a long time. 

Too many investors believe they can read a book, listen to a podcast and then jump into investing. That is a mistake and you can read many of the horror stories right here on BP from newbie's who failed to understand that if they won't read a medical book and perform surgery on themselves, it's probably not a good idea to read some blogs and start drafting contracts with no knowledge of the provisions and consequences of such an action.

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  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    If the deal is what you say, you haven't hit the wall at all. You just haven't considered all your options. 

    1.  use hard or private money lender for funding of the purchase. It will be costly, but it allows you to complete the deal and make a profit; or

    2.  hook up with an active local investor who will bring the money or the lender to the deal, help you understand the process and get the deal closed with no money out of pocket for you. You will have to share the profit but 50% of something is better than 100% of nothing.

    1Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Guy Gimenez

     Thanks for replying. I am new to this. If i pull this deal off, it will be my first one. With that being said, I still need to do a walk through of the property, and will take a seasoned contractor with me to assess the repairs. Even then, the seller does not live here and wants to get off the house. And the house is nice... (from what I've seen so far). I've researched the comps, assessed the value, and and will do my best to achieve the best deal possible for everyone involved. I believe I have a good understanding of my role as a wholesaler and want to start right and build my brand.

    I have a question about your second point: Are you saying the investor would bring the money to the deal? Like my portion? So say I assigned the contract to him at 110K, does that mean he would bring 210K? 

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  • Jason Windholz
    Investor · Tulsa, OK · Member since 2011 · 24 posts · 18 votes
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    its called "wet funds" or transactional funding. 10 years ago (or so) you could "float" the money and close without bringing any money to the table. Now you have to have the funds, even if only for a minute or two, to do the deal. 

    It usually only costs a point or 2, but 1 point a day, times 365 days a year, equals 365% return on their money. But only half that if they only do it every other day. and so forth. And 1% of $100,000 is only 1 thousand dollars. So just consider it a fee, like a repair, and pay it to do the deal. It sounds like you have lots of room in your deal to cover it,

    There is lots of that money around Atlanta but I am not sure by where Statesburo is in Georgia, but it probably works except in rural areas.

    PS its not illegal (committing a crime), so you won't go to jail for a double closing. Its the title companies that won't insure the closings and the traditional title companies don't want to take the chance.

    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    Sorry for the miscommunication. I was referring to bringing in an investor as a partner in the deal in order to get it done. Since you don't have a track record just yet, you may find it difficult to get a hard money lender to provide funding unless the deal is an absolute no brainer. If you can't get funding, bringing in another investor may make sense if he/she can bring the funding with them as they likely already have relationships with HML's.

    Of course, if you're planning wholesale the deal and you can get the attorney to agree, then all you need is a contract which allows for an assignment and you never have to go to closing...you just assign the contract to an end buyer (investor). The issue may be getting the attorney to agree.

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  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Jason Windholz

    Thanks for replying! You're speaking of hard money lenders, right? So if they give me the money for a day, I give it back the same day, they charge me 1000 for using their money? What happens if it takes longer to close than expected?

    Say for instance, I read earlier that in Georgia they don't electronically process the deeds. And that it can cause closing to be longer than expected... Will that cost me more money, or does that depend solely on the practices of the title company?

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  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    Yes, hard money. But if you're planning to sell to another investor the same day, why do you need to close on the deal?  Just assign your contract to the end investor for a nice fee and let him/her go to closing since they're now in your shoes as purchaser.

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  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Guy Gimenez

    Okay, I see what you are saying. I was thinking that's what you meant after I posted! lol I guess that's the purpose of having a "mentor". 

    Well, let me ask this. From what I know, once the probate is settled, isn't the property completely in the executor's hands? Can't I have an assignment clause in the initial contract? And then also while this may seem silly to ask, isn't wholesaling and assigning contracts the same thing?

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  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    Forgot to answer your other question. Transactional funding in my area typically allows for use of funds for one or two days only, otherwise, it's a 6 month HM loan. Not sure about your area but in my neck of the woods, transactional funding will cost at least 2 to 3 pts. 

    If it takes longer than a day to close it, you will pay 12% to 14% plus 2 to 3 points on the loan.

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  • Jason Windholz
    Investor · Tulsa, OK · Member since 2011 · 24 posts · 18 votes
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    Wet funds are not exactly hard money lenders, although similar, they are different people. Hard money loans are usually 6 months or a year. Wet funds are usually 1 day to a month. Wet funds lenders usually have a fee for extensions and the longer it takes, the more it costs. They analyse the numbers on the deal and look at you "new" buyer to make sure its an easy closing. If its too risky upfront, they won't even fund it. Then you would need a hard money lender to close the deal. 

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  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Guy Gimenez

     Goodness gracious! That's an amazing figure for someone in my position. 

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    I agree...you really should not be trying this on your own. You need some assistance from someone who has been down this road many, many times. No offense, but you don't know what you don't know.  Find a partner and learn while you earn. 

    Wholesaling is commonly used interchangeably with assignments but they're not the same. A wholesale property is one that can be purchased well below retail value. An assignment of contract is simply a process of transferring one's contractual interest to a third party, usually for a fee. I can wholesale a property (by closing on it first, then re-selling it thereafter) without assigning the contract and I can assign a contract without the property being a wholesale deal. You can assign a full retail purchase but you can't wholesale a retail property because by it's very nature, it's not a wholesale deal if it's priced at retail (or near retail) value.

    0Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Jason Windholz

     so, this is another way to fund. I will do my research on this as well! 

    BTW, Statesboro is where Georgia Southern University is, Home of the Eagles! :)

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
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    @Shannon Webb

    Don't misunderstand...the 14% is annualized so you're paying just over 1% for every month you are using the money. Most HML's have a 2 month minimum use period or there is a prepayment penalty. The 2 to 3 pts. may be required upfront (at closing) or when the house is re-sold to end buyer at the end of a flip, etc.

    0Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
    11y

    @Guy Gimenez

    No offense taken! I agree 1000% that's why I'm so happy to have found BP! My goals have been my motivator thus far and my local REIA meeting isn't for a few more weeks. lol

    With that being said, if I get the contract at 100K and ASSIGN it, The investor will pay the 100K and I would get an assignor's fee?

    0Reply
  • Jason Windholz
    Investor · Tulsa, OK · Member since 2011 · 24 posts · 18 votes
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    oh, I had to google map it, closest to Savannah. About the same distance between Atlanta or Jacksonville FL, and there are lots of choices in those two cities. 

    Research is key to this business, what you need is close, use your Eagle Eye to find it! lol

    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Shannon Webb

    "From what I know, once the probate is settled, isn't the property completely in the executor's hands? Can't I have an assignment clause in the initial contract?"

    Correct, but it doesn't mean the executor will agree to the assignment language. If they decide to involve the attorney past the probate phase, you'll have a more difficult time getting assignment language in the contract. And if the language doesn't provide that the seller will look only to the assignee for performance, you, as original purchaser, will usually still be on the hook for the purchase is the assignee fails or refuses to close.

    1Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Shannon Webb

    "With that being said, if I get the contract at 100K and ASSIGN it, The investor will pay the 100K and I would get an assignor's fee?"

    Correct, at least in theory. As mentioned above, if the assignee doesn't close, you may or may not get anything depending on the stipulations in your assignment agreement. Your assignment agreement stipulates the amount of your assignment fee and when it is to be paid.

    @Shannon Webb

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  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
    11y

    @Guy Gimenez

     That being the number on reason to have several investors in your pocket and to create great deals! This is work, but I'm enjoying it so far. 

    You seem you be a little deterrent when it comes to the assignment clause.... Is this something that is often frowned upon? 

    0Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
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    @Guy Gimenez

     and so I have to make sure to have a contract with the buyer, dictating the when's and how's, prior to assigning the original seller's contract?

    0Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Shannon Webb

    Assignments are a great way to make quick money, but an assignment is a contract, not unlike a purchase contract, so both the assignor and assignee must understand contracts and contract law or they can easily get deep into poo poo that can harm them financially for a long time. 

    Too many investors believe they can read a book, listen to a podcast and then jump into investing. That is a mistake and you can read many of the horror stories right here on BP from newbie's who failed to understand that if they won't read a medical book and perform surgery on themselves, it's probably not a good idea to read some blogs and start drafting contracts with no knowledge of the provisions and consequences of such an action.

    2Reply
  • Guy Gimenez
    Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    @Shannon Webb

    You should have an attorney drafted (or otherwise proven agreement) so when you find a deal, you'll be ready to assign the purchase contract as soon as it's signed. 

    0Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
    11y

    @Guy Gimenez

    Definitely! I have an attorney for those very reasons. I don't even sign a contract without first allowing him to go over it first. but I really have appreciated every thing you have shared with me tonight. I feel I can sleep easier!

    But I am a sponge and will enact proper due diligence before I sign a thing.... I just have to see where i'm going, Even if it's only 3 steps ahead of me!

    Thank you so much!

    0Reply
  • Ted Akers
    Centennial, CO · Member since 2009 · 758 posts · 251 votes
    11y

    Hi @Shannon Webb

    I have funded many transactional deals in Georgia, and because it is an attorney closing state (rather than title companies as closing agents) it is very difficult to find one that will allow a double, or simultaneous, closing to use your buyers funds to complete your purchase.  Which means they want you to bring separate "wet" funds to the table to close on your purchase.  That is what transactional funding was developed for in the residential market about 7 years ago and is referred to as "back-to-back" closings, where a transactional funder funds your purchase subject to your buyer having his/her funds in escrow with the same closing attorney.  It can be accomplished for under 2 pts. and in this scenario is likely your least expensive option compared to profit sharing or hard money.  Hard money lenders will require you, especially as a new investor, to have "skin in the game" of generally 35% of your purchase price.  A profit split is a good way to "earn while you learn", but if the actual spread is large you may have less expensive options.    Transactional Funding also avoids you having to disclose your purchase price to your end buyer for deals with large spreads that you are wanting to assign.

    Assignment can be an attractive option; but because you are dealing with a probate property it is also far less likely that the probate attorney will allow assignment language in your purchase contract. The probate attorney should vet YOUR capacity to purchase and want a bank statement from you, a lenders pre-approval, or a proof of funds from someone such as a transactional funder. Be aware that if the probate attorney digs deep into the requirements of transactional funding he may not like it either; because while you avoid needing assignment language in the contract it does require you to have an end-buyer in place. Make the offer in the name of your LLC and try to get as long of an inspection period as you can, during which time you can go secure a cash contract with an end-buyer.

    2Reply
  • Chadrick Odie
    Real Estate Agent · Jackson, MS · Member since 2014 · 14 posts · 3 votes
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    @Shannon Webb

    That is wonderful the progress you have made on your first deal. It seems you will have your first deal under your belt in no time. I would recommend finding a title company that you can grow with and the people their know you and your business really well. Building good relationships can help you get over hurdles. This deal is a big deal so there may be a lot of risk and being new makes it challenging. 

    1Reply
  • Shannon Webb
    OP
    Professional · Statesboro, GA · Member since 2015 · 65 posts · 6 votes
    11y

    @Ted Akers

    Thank you for replying!  Since you have secured funds for Georgia transactions, what time frames would you suggest I use when trying to obtain transactional funding? Should I have these funds prior to signing a contract with the seller?

    1Reply
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