How do I secure my deal so that my buyers cannot go around me?

Question

Hi, my name is Russell. I am new to real estate investing. I am trying to do some deals, but I seem to get mixed answers on how to go to closing, set up contracts, and just everything. I would like to give you a scenario of what I am trying to do and if you can help me sort things out I would greatly appreciate it.

I was contacted by a facebook friend and she has buyers that want to buy lots of investment deals. So, I have a connection that can get the deals from bank(s), brokers and other resources.

I have asked my connection guy to find the deals that my buyer is searching for. He said he would get the deals.

Now, I don't have money to invest at all. So, I called a lender. They will lend through transactional funding. The lender said that in order to do the deal, the buyer would have to have all the money in escrow with contracts to purchase signed, etc.

I have heard of investors, that are in my position, that have lost deals cause they were cut out of the deal by their buyer(s). So, how do I lock up the deal without anyone taking my deal from me?

My seller said that he wants to deal directly with the buyer, but my buyers are saying that their buyers don't want to deal with the seller directly. So, that's when I decided to use the transactional funding source. This way, I am the "buyer" and then i become the "seller" once I sell to the buyers. However, my buyers don't want me to use the transactional funding source for some reason or another, but I want to use transactional funding cause it'll keep the buyers/sellers from going around me. (I will charge a $5K non-refundable deposit to the buyer).

Now then, how do I make sense of all this stuff? How do I go about doing this deal using transactional funding with both my seller(s) and buyer(s)? What is the procedure/method/strategy for negotiating, contract set up, and closing?

Can my buyers have their buyer put money in escrow so that my buyers can have the money to show my lender that I have an end-buyer? Or how can this be set up so that everybody can win?

If anyone can help I would greatly appreciate it very much!!! Thank you in advance!

Ted Akers · Answer

@Russell Salinas

Transactional funders are going to require that the end buyers funds are in escrow before funding your purchase (for a typical same-day transactional funding).  Your facebook contact is another wholesaler, not a buyer, in this transaction.  The fact that they do not want you to use transactional funding, do not have funds to put into escrow, and want to deal directly with your seller for me would not be a comfortable scenario.  What has she done to prove to you she has buyers for this particular type of property?

This will have to be a very good deal to absorb two wholesale fees and still provide an attractive price to the end buyer.  Your best bet is to convince the seller to go under contract with you, even if the contract period is a fairly short one.  Can you come up with some additional incentive for him to give you a short-term contract?  Under contract prevents the end buyers from going around you, at least for the contract period.  Ask your facebook wholesaler to provide proof of funds from her end-buyer.  Daisy chains like this one with the facebook wholesaler are much less likely to get closed.  You have the deal, although really need it under contract, so you want to be more so dictating the terms to the end-buyer rather than the other way around.  Stay persistent and determined.

Best wishes getting this done.

Brent Coombs · Answer

@Russell Salinas , you said to Ted "My buyers haven't done anything to prove to me that they have end buyers with cash. They just say that their buyers don't want to deal directly with me, which I think is just an excuse to get me to give them my seller info so they can wholesale the deal, marketing for buyers not having a buyer at all"...

Then you said to me "I spoke with my buyer's partner and she even said that doing it that way was a great way cause its a smooth deal. No one can get cut out"...

Long and short of it, it seems time for you and your 'facebook friend' to decide if she is prepared to agree to tell her buyers that if they want to deal through HER, they will also agree to deal with YOU on YOUR terms (but of course, why wouldn't she worry that you might cut HER out once you get to deal directly with HER buyers?  But then as you say, do they currently even exist)?

Is your current Seller a one-off deal (or potential multiple)?  If it's only a one-off, you might be best to find your own end buyer for THIS one through another resource.  One who does have proof of funds for transactional funding.

And if your "connection guy" is likely to be able to find real deals for YOU on an ongoing basis, I suggest you foster that relationship very carefully.  Cheers...

Russell Salinas · Answer

Oh, and thanks Jay for the recommendation!!! Thanks to everyone who responded here.

Russell Salinas · Answer

Jay, what do you mean by taking a valid listing?

Jay Hinrichs · Answer

@Russell Salinas

sounds like a big wholesaler daisy chain.. For me personally I would not waste a minute on this.

What I would recommend is you get in a position to actually buy the Asset so you can then resell it... Or get a RE license and take a valid listing..

Russell Salinas · Answer

To Geo, Ted, and Brent,..

thanks for each of your responses!!! They are vey much welcomed!!!

First, Geo! Thank you for the welcoming!!

Yes, I do need to work on my negotiation skills, no doubt. I am working on that by taking notes on my experiences and everything I learn from you and others here on this site.

Geo, you said for me to ask my buyer to put X amount in escrow so I could secure my payment. How is that done? Do they put it in with an escrow company under my name and with a fee agreement signed by both of us?

I can get the seller to either sell to me or he and I can partner on the deal by setting up an LLC together. He has an LLC set up already and said that we can use his LLC company to do the transaction, but I'm not comfortable doing this cause of any legalities that I may be missing out on such as taxes, etc. Plus, I will have to get some sort of contract signed and for me not having capital to work with, its difficult for me to go to an attorney and get his help on stuff like this. So, I don't want to do that. Or how can that be done so that I get my pay from him?

Second, Ted!

My buyers haven't done anything to prove to me that they have end buyers with cash. They just say that their buyers don't want to deal directly with me, which I think is just an excuse to get me to give them my seller info so they can wholesale the deal, marketing for buyers not having a buyer at all. At least that's what my seller pointed out to me over the phone. I will get them to give me proof of funds to see if they are serious.

The only incentive to give my seller would be to partner with him or give him a portion of my profit. He did say he wanted me to teach him how to get money from the government for investing in real estate, something I'm working on myself. So, maybe that can be a pay off of some sort. My seller seems to be serious and has proved to be helpful meaning to me: he is honest and open. I just don't know if doing the deal through his company is a good idea.

Lastly, Brent!

Yeah, I thought about doing it that way and just get a fee. But I may be shorting myself without first seeing what or how much a deal can net me.

And on top of all this, like my seller pointed out: People can just go around me. That's what happened to him. So, now he just wants to deal with buyers. So, that's why I decided to go the transactional funding route. I can be his buyer if only my buyer would cooperate. I just may have to find other buyers who buy direct from me. I just wish we could do the transactional funding.

Now, I spoke with my buyer's partner and she even said that doing it that way was a great way cause its a smooth deal. No one can get cut out. I just don't understand why they don't want to use it. My seller was all for it. That's why he wanted to partner up and do it in his company.

I spoke with the funding company and yes, like Ted said, they will require the buyer to have all the money in the escrow account. They don't have a problem lending the money. They can do up to $100M per deal. I've gotten POFs from this company before and I know they are legit. So, being low on capital isn't a problem for the most part. Just need cooperation from both parties!!!

Thanks for the help guys!!! I am logging everything so I can keep and have scripts for future reference. Thank you so much and I hope we can do deals together in the near future. Let me know what you are looking for and maybe I can find it. Once again, thank you!!!

Russell

Brent Coombs · Answer

@Russell Salinas , you said "My buyers just want me to sign a fee agreement with them and just let them deal directly with my connection so they can wholesale it to their cash buyer(s)"...

Maybe, just do that (a fee agreement for $5k per successful transaction - or, just how good ARE your negotiation skills)?  They won't like that idea, but, if they want access to your "connection guy", make them pay!  Same principle as receiving residual royalties for a one-off burst of creativity.

Also, this does not prevent you from using your "connection guy" for other deals too.

(Your facebook friend is also likely hoping to get as much out of each deal as you are, so like Ted said, "this will have to be a very good deal" - probably needing to absorb THREE or even FOUR wholesale fees - including your own "connection guy")? Cheers...

Geo K. · Answer

@Russell Salinas

Welcome to RE Investing. I believe all three, you, seller and buyer want some sort of security. Buyer and Seller seem to be nervous on your ability to close. I agree with Brent on the negotiation skills aspect as well.

I believe REI are trying to solve a problem to your buyer (he needs investment property) and to your seller (he needs to sell), so what I will do is talk to your buyer and tell him:

"I have a great deal that will leave you with great profit based on this numbers... However the seller wants to deal directly with the buyer. This is our first deal together, but like this there could be more. Would you be ok putting X amount in an escrow and I will put you in contact with the buyer."

If the deal closes the X amount of money is yours.

Another thought, will be to ask your seller to give you an option to buy the property. I am not sure the seller will agree to this since he wants to deal with the buyer directly.

Either way, finding the deal and securing the deal is the most important aspect when you are working with low capital.

Disclaimer: I am not providing legal advice, just my thoughts and opinions based on my experience in Florida. If you want to be sure I would suggest that you look your specific laws for these techniques in Texas.

Russell Salinas · Answer

Brent, thanks for the reply. The seller and buyer are real. Yes, I do want to have the seller sign a contract with me and I would like to have the buyer sign a contract with me, too. The seller has no problem. I just have to do a transactional funding so that he can "sell" to me since he wants to deal directly with the buyer.

The real problem is that my buyer says that they have cash buyers, but that their cash buyers don't want to deal directly with me because he doesn't know me. I don't have a personal relationship with him. (I smell smoke!!! And I'm not in the hog buying business!!!)

My buyers just want me to sign a fee agreement with them and just let them deal directly with my connection so they can wholesale it to their cash buyer(s).

I don't want them knowing who my connects are and I don't want them cutting me out of the deal. So, that's why I decided to be the buyer and then the seller by the transactional funding!!! But my buyers don't have the money to put in escrow, which is what the lender requires.

What do I do?

Brent Coombs · Answer

Russell, when you say "My seller said that he wants to deal directly with the buyer, but my buyers are saying that their buyers don't want to deal with the seller directly", was that hypothetical (or what OTHERS have mentioned to you)?  As far as I can read your circumstances, that does not seem to apply to your "facebook friend" (buyer bird dog) or your "connection guy" (mucha moula)?  If however your seller is the actual real life seller who you already want to pluck property away from, then maybe you DO have a problem.  In your preferred scenario, surely you are aiming to get the seller to agree to sign the sales contract with YOU?  It might come down to how good your own negotiating skills are (in giving the seller as much personal detail about the buyer that you can without overstepping privacy boundaries or letting them know the ACTUAL end-buyers identity) so that the seller WILL let you be the signatory, "or Assignee" come closing day.  Cheers...

How do I secure my deal so that my buyers cannot go around me?

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