Wholesale Real Estate Investing, Talking to Sellers and Buyers

Here is the email I received from Lara:

Nick,
I love your site. It's exactly what I needed to fill in the blanks. Well, most of the blanks. I've listened to many courses on wholesaling but there was a little info missing from them. I was hoping you could help me fill in those blanks.

#1-What do you say to a seller, how do you explain what you're doing, without the seller getting mad? I know there are wholesalers out there who don't tell the sellers what they're doing, but I'd rather be up front so they don't find out later. So how do you talk to the seller?

#2-What are you saying to the buyer? What would stop them from going around you to the seller? And how exactly do they pay you, up front or double close?

What do you say to a seller, how do you explain what you're doing, without the seller getting mad? I know there are wholesalers out there who don't tell the sellers what they're doing, but I'd rather be up front so they don't find out later. So how do you talk to the seller?
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Do not waste time with non-motivated sellers.

This is really important. Don't waste time with non-motivated sellers.

In other words, if the seller won't do almost, not everything, but almost whatever you ask them to do, you're probably working with the wrong seller. So don't spend a lot of your time trying to buy a house, flip a house, or sign a house from somebody who won't leave a little bit of spread in there. So don't work with unmotivated sellers.

In most cases what we're going to tell the seller when we sign the contract is, "Mr. Seller, we're going to get your house under contract, we fully intend to buy your property, but first we need to have a good inspection and be sure we're not going to have any surprises that we're not expecting. Plus we're going to bring in a money person, sort of like a money partner, who's going to fund the property."

And I do tell the seller upfront, "If there are more repairs than we estimated once we get a really good look at it or if there is some reason our money people can't come up with the funds to close this, we're not going to be able to do it. You will know if a few weeks what's going to pan out, though."

Now, there are two ways to do this: one is what I just said. But Lara is right, a lot of investors just say, "Oh, I love your house and I'm going to buy it." Now, if you have an extensive enough buyers list,the price is right, and you know there are people that are going to buy it, you can do that.

If you would rather be really cautious about it and it bugs you to think you're leading them on a little bit, then you can sign an option with that seller and tell the seller, "I'd like an option to buy your property. In other words, here's how much I'll agree to pay you if we buy it, we'll close it in 30 days if we buy it, but there's a good chance we won't buy it." And you can just tell them exactly what you're doing, "You're going to agree to sell it to me at a certain price, if I want to buy it. And then I'm going to go out and try to find someone else to buy it from me."

Now, if they won't go for that, remember what I've said plenty of times--don't waste time on non-motivated sellers. If they won't go for that, you're not dealing with the right kind of seller. Run away. But most of them, if they want to sell the house, will go for that.

And then you sign an option contract with them, and you can even tell them, and I do this all the time, "Mr. Seller, you can continue to try to sell the house on your own while I'm looking for my buyer. So if you find someone to buy your house from you first, go ahead and sell it, don't worry about me, my option is null and void."

Chances are though, I'm the professional, I'll probably find someone quicker than they can to buy that house, assuming it's a junker house. Now, if it's a pretty house and you're looking to find somebody to come in retail and buy it and move in and live there, I would always suggest the option route. You get an option on the property and it lets you find a buyer.

Really, the bottom line is this: be upfront, have a motivated seller, and have those two options--either get it under contract or just get an option on it if it really bugs you. But even if you get a contract on it, you can tell them you're almost sure you're going to buy the house, you just have to be sure it's in the condition you'd like and that your money partner agrees. Just tell them, "If this guy is going to fund the whole deal, he has to agree," and that's the whole truth.

What are you saying to the buyer? What would stop them from going around you to the seller? And how exactly do they pay you, up front or double close?
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First of all, have a contract with the seller.

In the contract make sure it says, especially if you're doing the option type of contract where they have the right to sell it, you have to make sure it says that they're absolutely not able to sell the property to anyone who came to them through you. For instance, last week we had a buyer who came to us through a Realtor. The Realtor was going to get paid and we're going to get paid. The seller went right to the buyers house, though, trying to get rid of us and the Realtor! It's going to happen sometimes. It won't happen if you're working with an investor. Well, I won't say "won't." Chances are it won't happen with an investor. If you've found a good property for that investor, he's not going to cut you out $4,000 or $5,000 because if you're able to find him properties, he'd rather you find him another property, and another property, and another property.

When you're dealing with a retail person who's going to move in, that's when they might go around. But if you get wind of that, and again, you can't always avoid it, but if you get wind of it, there's a specific way you can go about addressing it.

I was at boot camp last week teaching when it was happening and one of my project managers called me to tell me what happened. He found out because the seller called him and told him, "That buyer you're working with came here and wanted to scratch you out of the deal and I told him absolutely not, you've worked too hard on this."

Now luckily we have a good seller. Had the seller not been willing to come directly to us like he did then we would have called the seller and told him we have a contract here and we'll file that contract with the county, which then requires our signature to sell the house. Even if you don't file it, you can tell the seller you're thinking about it to make him a little nervous and not want to cut you out of the deal.

And how exactly do they pay you?

Typically, I go by the golden rule: "He who has the cash makes the rule." It really depends on your buyer though. If I'm dealing with an investor and he's using private money or has a line of credit or is using cash-anything besides a traditional mortgage, then we're probably going to just do a simple assignment.

I get the contract to buy it from the seller, then I get a contract called an assignment of contract agreement. I fill out that agreement, my buyer pays me $3-5,000. (The most I got from a straight assignment was $19k, and we got it upfront and then he went on his own and closed with the buyer, so it does happen.) I would rather him sign that assignment contract, which lets him step into our buying spot, give me my $5k upfront, and then go buy it from the seller. Now, this doesn't always work. It works if the guy has cash. If he's borrowing the money, and its not from a traditional lender, he'll want to roll it into the closing. So you can put it into the closing because, again, if he's dealing with cash or a home equity loan or a private lender, they don't care about all that seasoning. So you can just put right in the contract $5k assignment fee payable to me. Then you get paid at the closing.

I would suggest you get some earnest money, though, to lock it in, and make sure that you get paid. We at least try to. If it's someone you've dealt with more than once, though, I don't care about earnest money because if they tell me they're going to close, I already know they will.

The other situation that can happen is when their money is coming from a traditional lender. In that case it makes it tougher because a traditional lender is going to want seasoning and is not going to want to pay an assignment fee. It depends on the lender, of course. But in that case I get my money from the seller. We have the seller sign a contract and they actually sign a form where they pay me to release them from their contract, allowing them to sell it to the next guy. It's called a release of contract agreement. Basically I get paid $5,000 or whatever at closing to release them from selling to me and let them sell it to the next guy. And it works.

If you don't get it, send me an email at flippinhelp@gmail.com and I'll explain it a little bit better.

The other time when that happens is when you're selling to a retail buyer. If you're selling to somebody that has a traditional mortgage, you're going to have to close it that way too. If it's a large sum or if for some reason you feel either the seller or buyer isn't going to go along with the profit you're making, then you're going to have to do a double-closing. You'll have two closings in one day, where you close and buy it from the seller and then 15 minutes later you sell it to the end buyer. You can only do that if he's using private money, a traditional mortgage probably won't work. I try to avoid the double-closings, although we do them.

Any good wholesale course will teach you how to do them. It's really not complicated. If you have the cash to pay for it first, it's real easy. But in most cases you let the title company know what's going on. Most of the main title companies won't do it, but ask around enough and you'll find a title company that will do it.

You can even have your buyer come in first and sign all the paperwork and then use that money money to buy it from the seller. Again, a lot of it depends on the buyer. Typically, however, if the buyer wants to do it, since he's the guy bringing the cash, we'll work with him and get it done.

Hope that helped!

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