if you can't locate an investor, do you have to buy the house??

Question

1.) you find a house that needs some work

2.) you contact the owner, find out he is motivated, throw him a lowball which leaves plenty of room for you to make your assignment fee and make an investor a good bit of cash after they rehab and flip it or rent it out

3.) the seller and you sign a purchase agreement essentially saying you have the exclusive right to buy the house for the next 30 days

4.) you fail to get an investor to buy the property because, well, you're new to all this

is step 5 you have to buy the house? or do you just tell the seller sorry my investors weren't interested? can he go after you legally for wasting a month of his time??

thanks!

Demos Loizides · Answer

I always tell the seller that I will not be the end-buyer. I either use an Option to Purchase agreement which is good for 45 to 60 days or I use a contract that says it is subject to assignment to an end-buyer. I don't ever use rinky dink clause that say "subject to my partner's approval" if I don't have a partner.

Curt Davis · Answer

Corey, I would suggest finding a mentor, someone who will help you with your learning process. Many investors do things different. Myself and my company have our own way of doing things. You need to do whats best for you. I come off aggressive b/c in this business all you have is your reputation and if you burn it too many times you will find that you will have a hard time making things happen. Keep your relationships in check and you should be just fine.

Corey Demuth · Answer

I am not trying to do a half-assed job by any means. But surely you must understand that all the "you can do it" / "it's all up to you" / "sky's the limit" real estate slogans in the world can't change the fact that in reality a lot of people screw up their first time, and if you fail to locate an investor and/or get them to close on your first deal, I don't think it should bury you. I mean, how are you ever supposed to do your first deal if you have such a zero tolerance for error policy?

Jon Holdman · Answer

Depends on what's in the contract. With an option contract, the owner keeps your option money whether you sell or not. With a purchase agreement, there is typically an option to specify either "liquidated damages" or "specific performance" as the remedy for a failed contract. If you check liquidated damages, or otherwise specify that in your contract, the seller keeps your earnest money as their only remedy. If specific performance is specified, they can sue you. If you put some weasel clause in the contract, like "contingent on partner's approval", you can say your partner didn't approve and bail on that basis. Now, whether any of that is ethical or not is a different question. If you're going to contract with someone to buy their house, you should be sure to follow through. Otherwise, you may just be making a bad situation that much worse. RE investors have a bad enough reputation already.

David MacGown · Answer

Corey, You will not be forced to buy the house but chances are you can say goodbye to your earnest money deposit...if you are dealing with a realtor you should be prepared to buy the house anyway so that you don't burn bridges in your area. (line up a hard money lender or private money before hand) You can also request an extension, just offer them (the sellers) a consession for doing so. The best way to avoid this problem altogether is to have a good database of qualified cash investors lined up. This way you will know what kind of properties and neighborhoods are in demand...you can't do much wrong when you buy in a hot neighborhood but just to be on the safe side avoid very old homes, 2br's, houses on alleys, close to commercial properties, very small houses (below 850 sf) Know what is a must have in your geographical area. i.e. basements for Michigan homes and Block frames for Florida homes.

Rodney Dawkins · Answer

Corey, I'm no Pro by any stretch, but I do believe it all boils down to due diligence in having all your ducks in a rolw and full disclosure to the parties that you are dealing with. After all real estate investing is as much a relationship business as the $$$$.

Phil * · Answer

If you told the seller you are buying the house, than you need to buy the house. That's what a contract is for. If you simply want to try and resell before buying, you need to state that in the contract that if you cant get an end buyer, your not buying. But then your walking a thin-line on licensing laws.

Chris T. · Answer

You're right Corey. You need to leave room for error. It's ok if you start out in the minor leagues at first. Later you can worry about what other "real investors" think of you and you'll be accepted as a "big boi." That is, if you really give a flip about what ginormous self-proclaimed super investors think of you. :0

Curt Davis · Answer

Real investors always close on the property even if they do not sell it within the time frame. This shows you how many real investors are out there. It is like I have said before, if you want to be a real wholesale investor , you need to play with the big boys or you can play in the minor league's and do assignment contracts and back out of them when you dont sell. Do not lock up a property if you can not close on it!!!

Richard Warren · Answer

If you are going to wholesale you will have plenty of times where you are unable to find an investor to buy the house. You should be sure that your contract has plenty of escape clauses that allow you to back out of the deal. Of course you can buy the house if you want to but you wouldnâ€™t be forced to do so. :cool: