After months of studying everything from home real estate courses, hundreds of online articles and other study material I am going to venture out for my first deal in wholesaling, but before I do so I need help with a few minor questions.
I have read articles not only on this site but others as well that when “wholesaling” properties some people get burned on some deals when assigning their contract over to another buyer. For instance, one investor (A) in an article assigned his contract over to another buyer/investor (B) and was going to collect a $3,000 profit from the deal. But it comes to pass that the investor (B) ended never closing on the deal and the first investor wasted his time and never collected his money. My question is: How do I protect myself from getting burned like this? Should I collect the assignment fee up front?
This is my last question: When assigning a contract over to another investor/buyer, do I just hand him/her the contract with my name on it and the seller’s name on it and let him/her take it to closing? I’ m not sure how this step of the process works in assigning a contract. Could someone please explain this part of the process to me?
I appreciate everyone’s help as I am just starting out and eager to learn as a newbie.
Wr1ght:
You are on the right track. Wholesaling can be very profitable if you know what your are doing. I would recommend you do one more step. You need to open up escrow as an ‘Assignment’. Get your purchase contract signed, tell your wholesale buyer you are going to assign him your ‘escrow’ as soon as he pays you your fee. This is very simple to do. Call up your escrow officer and have them draw up an amendment stating that you are ‘assigning’ your escrow to Joe HomeBuyer. Then contact the seller and tell them that you are closing in your partners name for tax reasons. Make sure your wholesale buyer pays you up front! You can walk your wholesale buyer into the escrow office, show him that you are assigning the escrow to them upon payment. Make sure to get certified funds. No checks unless you have built a relationship with your wholesale buyer.
You brought up a good point about people getting burned because their wholesale buyers did not close and they were getting paid on the back-end.
This is how you take care of that. Line up financing with a hard-money lender or private lender ahead of time. If you are buying right below 65% LTV, you should be able to get 100% financing. Then you can tell your wholesale buyer that you have financing all arranged for them. Watch how fast you have wholesale buyers are lined up at your doorstep when you have financing in place. If you are really slick, you can try to talk the hard-money lender or private lender to pay you a point or two for all of your referrals! If you use these techniques and build a relationship with a select group of investors that you can trust, you will be very successful in this business.