Meeting with Wholesale Real Estate Sellers

That means you don't want to intimidate sellers by overdressing in a suit and tie. Instead, dress casually. And be sure to bring three items with you-a flash light, a digital camera, and a standard purchase agreement.

Use the digital camera to take pictures of everything. Before you go inside the house, photograph the outside, making sure to walk all the way around the building to look for cracks in the foundation or slab, damage to the siding or windows, or any other kind of defect. If it's rained, look for any drainage problems. If you live in a cold climate, look for any roof damage due to ice dams, etc.

While you're at it, take pictures of the houses next to the one you're inspecting. That way you can see how desirable the targeted property is. For example, if the house next to it is a dump and someone is living in it (and you can't also buy that house), then the targeted property is likely not a good buy, especially if you plan to retail it. The occupied property will negatively affect the value of the house you're interested in. On the other hand, if the house next door is vacant, you'll want to track down those sellers as well.

Once you go inside the house, you'll need the flashlight. Many of the properties don't have electricity, especially the vacant ones. Sometimes the sellers will meet you at the house, and sometimes they won't and just tell you to go to the house, look at it, and then meet with them at their new place. If they're out of town, then all you need to do is inspect the property and then fax them a contract. If the sellers do meet you at the house and walk through with you, shine your flashlight on needed repairs and hold it there for thirty seconds or more. This will make the seller aware that you know the house needs these repairs.

As you inspect, ask the seller questions like:
"I see water stains on the ceiling. How old is the roof?"...or..."How old is the plumbing system?"...or..."Are the plumbing pipes copper or galvanized?" etc.

Always ask sellers about the roof and the plumbing because defects in these areas can cost you a lot of money. Here's an example from my personal experience: Early in my career, I made a rookie mistake. An inspector told me that water stains throughout a house were probably due to a simple air conditioning leak. At that time, I didn't know that AC leaks happen only in one area-where the AC is. It turned out that the house had galvanized pipes, and every three or four feet there was a leak in those pipes. I ended up having to pay over $4,000 to replace that plumbing.

Also, check for foundation problems. Sometimes, it's easy to see when the house is slanted; sometimes, it isn't. One way to make sure is to use a four-foot level. Place it on the floor. If you have to lift the level more than a quarter of an inch, that generally means there's a foundation problem.

It's a good idea to take along a notebook or a small, dry-erasable board for the drive to the house. That way, as you go through neighborhoods and spot other vacant houses, you can write the addresses down quickly and take photos and put that information in your tickler file for follow-up.

CONTRACT TIPS
The contract you bring along can either be your state's Real Estate Commissions contract or a simple one or two-page contract that you can get from a store like Office Depot. Unless your state requires a specific contract, I'd recommend the use of a simple contract if you're new to wholesaling. It's easy for both you and the seller to understand and can make the whole transaction go more smoothly. Once you're more experienced, you can use longer, more specific, contracts.



(After the contract is signed, don't forget to complete and file an Affidavit and Memorandum of Contract at your county court house. This publicly announces the fact that you have a contract on the house. You can put your name and address on it to let people know they can contact you.)

In terms of the contract, make sure your buyer's name is your name or your company's name. This technique allows you to wholesale to other investors in a more flexible manner. If the seller has a problem with this, simply tell him or her that you have several different companies and aren't sure about which one you want to use for the title. If, in the worst case, the seller refuses to let you assign the contract, just double close. It will cost you bit more in closing costs, but that's no big deal. Usually, the only parties that won't let you assign contracts are institutions like banks and Fannie Mae. But, of course, check with your state regulations to make sure.

Make your offer to the seller as an all-cash offer (unless there's a loan on the property and you're trying to do a subject-to-a topic for another book). All-cash offers are very attractive to sellers. The cash for the offer may come from buyers like private lenders, hard money lenders, or similar sources. Upon close, you want the seller to get a check written to them or the money transferred to their bank account.

Stipulate that the closing take place on or before thirty days with the provision that the period "be extended as necessary to complete all paperwork." Sellers may want to close within two weeks, and you can tell them that that's fine, but make them aware that more time may be needed to clear the title and get all documents ready. It's in your interest to close as quickly as possible, but paperwork can always slow things down; that's the reason for including an extension provision in the contract.

Let the seller know that you're buying the house as-is. You don't expect them to fix up the house. However, you do want to be able to get out of the contract if you can't wholesale the property. To cover this possibility, write "subject to final inspection" into the contract. This is a standard provision. Every seller understands that when you buy a house, an inspection is necessary. Another provision you can use is "subject to partner's approval." If the final buyer inspects the house and finds that it needs too many repairs, they won't close the deal. With the "subject to" provision in the contract, you can cancel the transaction.



Sellers may ask you for earnest money. I normally don't put up any earnest money. Instead of where it asks for the amount for earnest money in a contract, I'll put "other considerations." "Other considerations" means it can be any other type of consideration, such as a promise to buy and sell. So in this case, it means the seller promises to sell and the buyer promises to buy. A promise is regarded as a consideration. Now, if the seller insists that he or she wants you to put some money in, put in $100 at most, but don't give it to the seller. Instead, place it with the title company.

Sometimes you'll get sellers who've been talking to real estate agents and will insist that they want $1,000 in earnest money. If they do, tell them that you don't normally put down that amount of money. But, if they still insist and the property looks good, don't worry about it. Deposit $1,000 with the title company. After all, you'll already have a subject-to clause in the contract that you can get your money back, so that cash is safe.

Once you have the house under contract, then it's time for the title search. That's the subject of the next article!

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