Deal Diary Epilogue: Lessons Learned

We did the deal that was the subject of Parts 1, 2, and 3 of our recent blogs by getting the house under contract and then assigning the contract to a rehabber who would close the deal and pay our wholesaling fee simultaneously with the closing. We earned a good wholesaling fee and learned enough to do things differently in future deals:

1. The contract. We used the standard Wisconsin purchase agreement form WB-11 with the seller. We added a few amendments with Wisconsin form WB-40 to verify the assignability of the contract, but failed to anticipate a few contingencies. We should have included a clearer opportunity to extend the closing date and to give us better access to the house prior to closing regardless of any conditions. The delays that we encountered in getting contractors into the house for estimates created other delays that pushed the closing date by almost 30 days, which came close to killing the deal. Next time, our purchase contract will give us better protection.

2. The rehabber.  The rehabber who took the assignment of the contract did a fantastic job on his end, and we would do a deal with him again in a minute now that we know more about him. The biggest overall problem was that he represented that he had money to do the deal via a line of credit from a hedge fund, but that credit line had many strings attached to it that we did not discover until well into the deal. We should have done and in the future we will do substantially more due diligence on the rehabber's money sources before agreeing to assign the purchase contract. The money to close the deal did materialize, but only after significant effort from us and the rehabber.

3. The buyer's attorney. Real estate closings are like improvisational jazz performances. Everyone in the ensemble wants a solo, and the buyer's attorney in our deal was no exception. Although the attorney's role is really just to make sure that the contracts and closing documents are in order, the attorney here felt a need to prove his worth to his client and he inserted himself into more parts of the deal than we believed were necessary. For future purposes, we need to factor in some element of soothing the ego of the buyer's attorney.

4. The title company and the closing.  We had planned to take a road trip at the end of June, expecting that the closing would be done by then. Then the closing was rescheduled to June 29, when we would be on the road. Since the rehabber was taking title directly, he was at the closing and we stayed in contact by mobile phone. Of course, we needed to execute another document to get the closing done. We got off the road, found a Fed Ex Office store and downloaded the document, signed and scanned it, and sent it back to the title company. The title company was then going to handle transferring our wholesale fee to us, but because it was already late Friday afternoon by the time the closing was done, we did not get our fee until the following week. Technically, our fee should have been paid directly to us by the rehabber without running it through the closing. In the future, our contracts will be specific on that issue. We will also be less likely to schedule road trips when a closing may be pending.

Overall, this was a good and successful deal for us. We are gratified to see the progress on the rehab, and we are satisfied that a house that had been in a state of disrepair will get back into the market in much better shape. 

Contrary to how wholesaling is pitched to new investors, this was not an easy process. We learned a lot and fell back on experience in other areas of business to survive the many issues that cropped up. Investors who are getting into real estate through wholesaling should do so with their eyes wide open and preferably with someone who can shepherd them through their first few deals.