How Do I Properly Wholesale Properties?

Question

Good Morning Bigger Pockets Community,

I am considering going into Wholesaling as a starting ground for real-estate investing and I want to make sure that I do everything properly. However, I am unsure of how to put together a Wholesale purchase contract, such as  the important contract language to include, how to protect yourself in case the deal doesn't go as planned etc... I have read that you have to include the words "and/or assigns" in your contract or you can not conduct the Wholesale deal. There are some that say that  adding "and/or assigns" to the contract is old and outdated and you will not be taken seriously. What is the proper method for getting a property under contract for purchase by an investor from start to finish and are there any good templates out there? Any expert Wholesalers out there feel free to respond.

Thank You,

Anthony

Jay Hinrichs · Answer

@Bernard Chouinard  they are called weasel clauses for a reason.

you have wholesalers that are taught these schemes  IE they have no money so they cant close or don't wish to close..

they tell the seller ( you see it everyday Hey I am a cash buyer when in fact they are not) so they fib to the seller.... seller thinks they have a deal.. now if you do normal inspection periods say 10 days that's one thing but many of these yahoos will tie this stuff up for 30 to 60 days only to walk at the last minute because the Partner ( who is a figment of the wholesalers imagination suddenly does not approve.)

just change the positions here.. your the seller .. your not very experienced.. some nice buyer has sent you a direct mail or bandit sign .. Hey I am all cash close in 10 days... only to find out none of that is true.. now if you believe white lies and fibbing to sellers to feather your own nest is OK then that's your moral and ethical compass  ( not speaking of individually as I have no way to know) just talking about how wholesaling is taught and you see it with the post above recommending that they use weasel clauses..   that's the issue most professionals in the industry have with this pestilence that is EMPTY POCKETS wholesalers  LOL  emphasis for effect only.

Mindy Jensen · Answer

@Ryan Dossey, we're working on that vote limit thing...

@Jay Hinrichs , I was at a local meetup and heard an attendee talk about how he puts a clause in his contracts "Pending partner approval" and was laughing about how his partner was his cat. It made me sad for any seller he had under contract.

@Anthony Boone , listen to the  BiggerPockets Podcast 136 with Shawn Holsapple and  Podcast 2 with Karen Rittenhouse . Both wholesalers, but they put a property under contract and they make sure it closes. If they can't find a buyer, they buy it themselves.

Ryan Dossey · Answer

@Jay Hinrichs Is RIGHT on the money. Partner Approval, cash w/ financing contingency, inspection (but not a cert inspection), etc. are used that literally state you can terminate the contract for any reason under the sun.

What I'd highly recommend if you can't close....

Use a HML.

Or... better yet... Find someone local who you can bird dog for.

Jay I've been agreeing with you too much today. BP won't let me upvote this one.

Jay Hinrichs · Answer

@Ryan Dossey  and like Ryan says if your starting with limited capital you should be simply bird dogging for a buyer that can close...

John Thedford · Answer

@Nick Colamarino

Yes those guys that promote all this never mention state laws. The only thing a new guy sees is instant EASY cash starting with no money and often no education. I seriously wonder why BP has podcasts promoting this type of operation even though it is so borderline illegal if not totally illegal in some jurisdictions.

Ryan Dossey · Answer

@Anthony Boone Your best bet is to close and resell.

John Thedford · Answer

@Thomas Anderson

Who is your partner? A rat?

If you are playing games, not closing, and don't have funding you are the typical unlicensed broker. Here is from FL statues 475.43"All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserve"

I will welcome the day when all the frauds and game players are mostly out of business. I report everyone that I believe is brokering without a license. I probably send in at least one or two complaints a week.

Thomas Anderson · Answer

I don't put that clause in my contract lightly. I have  over 400 partners on my email list. And I also have access to many more on specialized investor websites. I don't have a problem getting buyers as long as the deal is good. I have had investors put in a contract within 1 hour of sending out the email about the property. FYI I am a licensed agent. I also represent several investors that want me to market their deals to my buyers.

@Pratik P. is absolutely right in his statement "Explain to them that you work with a group of investors who purchase properties for cash. They are my partners but I don't know which one will like the property." Also what he said about a double close is really important. I do double closes on deals where I am making more than $10,000 and do an assignment on deals less than $10,000. The title company I use will use my buyers cash to close on my part of the deal so I don't have to bring cash to the table, not even transactional funding.

Pratik P. · Answer

@Anthony Boone

I think by now, you've gotten the point that the "partner's approval" clause isn't a good idea.

The best thing for you to do is to be upfront and honest with the seller from the start. Explain to them that you work with a group of investors who purchase properties for cash. They'll understand that you're not the only one in the transaction. I don't think you'll have a problem with the assignment clause if you do this. If it's still a problem, you can double-close.

I don't see a problem with a 10 business day inspection clause. There are things we're not experts in, like HVAC, electric, plumbing. These things may need to be inspected by a professional and can easily eat your profit margin as a flipper. Just don't make it 30-60 day and wait till day 59 to back out.

A very important skill you need to have is to accurately estimate ARV and rehab costs. If you know you have a real wholesale deal, you should have no problem finding a buyer. I recently put a property under contract with zero contingencies and a large EMD because I knew my numbers and that it's a great deal.

Look into J.Scott's estimating rehab costs book, learn how to accurately determine ARV and learn what profit margins investors in your area are working with. That'll give you more confidence when signing a contract without needing "weasel" clauses.

Nick C. · Answer

Every time I think real estate has too much regulation I see a post like this one - "subject to my partner's approval". Then I remember why it's so regulated. I don't think the wholesale industry can survive this tidal wave of bad wholesalers entering the marketplace.  Eventually they're going to start making examples out of people and drop the hammer. I truly hope it's the gurus who get in trouble, not the unsuspecting victims they prey on, who are just seeking a better life for themselves.

How Do I Properly Wholesale Properties?

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