Quote from @Dane Babcock:
That's the basic info. But now I'm hearing about things like approaching title companies, putting down earnest money, dealing with realtors and inspectors, etc. This is where I'm confused. I don't know if these additional things are necessary or optional, or if there's a specific order to all of it. I don't want to get it wrong. Can someone help me straighten this all out, please?!
1) Once you get a property under contract I would suggest taking your contract to an investor-friendly title attorney/company and having them start a title search immediately. It usually takes a few days but could take a week or more and time is of the essence so the sooner you start, the better. It could cost a couple hundred bucks but you can just roll that cost into your assignment fee or put it as a separate buyer-paid cost on your assignment contract (which you should also file with your title attorney/company as soon as you get it signed).
Definitely have a contingency in your Purchase and Sale Agreement with the seller based on a clean and marketable title. The title search will reveal any liens, delinquent taxes, etc that could kill your deal. It will also reveal if the person trying to sell is not the legal owner of the property.
2) As for earnest money, there are four ways I see this commonly handled.
- Don't put down any. Some sellers are fine with this, especially if you can guarantee close within a week.
- Put down an insignificant amount. I've heard of $50 or $10 or even $1. Some places require some exchange of money to validate the contract. Some wholesalers just throw down $500 when signing the PSA to let the seller know they're serious.
- Put down an earnest money deposit then recoup it at assignment. For example total sale price to buyer $75k including your $5k assignment fee, so $70k to seller. You put down $1k EMD to the seller when signing PSA, get $6k from buyer as assignment fee with $1k deposit, buyer pays you $5k and the seller $69k at close.
- Offer earnest money but not at same time as signing PSA. Structure the contract so your EMD is paid "after approval by partner/assigns/[whatever]". So $0 paid when signing PSA with seller. Assign to buyer for $6k with $1k deposit. Then pay $1k EMD to seller. Or have buyer also put up EMD when paying assignment deposit. This means no money out of your pocket.
For everybody's protection it's a good idea to have the EMD in escrow with your title attorney/company rather than paid directly to seller.
3) You shouldn't have to deal with realtors as a wholesaler, unless you're trying to wholesale properties that are already listed on the MLS.
4) Contractors and inspectors are really the buyer's responsibility. Most buyers already have people they work with regularly that will check out potential properties for them. You could see about having one of your own to help estimate rehab costs, but it isn't strictly necessary.
Hope this helps, sorry for such a long post!
