A fellow I know got a great property under contract, found a buyer for his wholesale deal and was looking to make a quick $10,000 on the deal. However, he made a few mistakes along the way which almost cost him the deal and I want to show you how to avoid them.
First off, he did get a $2,000 deposit from the buyer. That’s a good amount of money and if I were you, I would never go below $2,000. If a buyer/rehabber can’t afford that amount of money, then you don’t want to do business with them.
However, a mistake that the fellow made was that he didn’t get a proof of funds letter or “check the credentials” of the buyer. In short, he just took the guys word that he’d be able to come up with the rest of the money and to be able to close in less than 30 days.
Well, as the closing date approached…
The buyer called the wholesaler and said he needed more time and wasn’t going to have the money ready in time. Since this wholesaler was new, he didn’t want to lose the deal and he called up the seller to see if they would extend closing, which they thankfully agreed to.
Finally, after another delay the seller did end up getting the money, coming to closing and this wholesaler got paid. However, it caused him a lot of stress which could easily have been avoided.
Like I mentioned earlier, see a proof of funds letter to make sure that the buyer will actually be able to close the deal. Also, if this person attends your local REIA meetings ask around and find out what their reputation is. If it turns out they’re flakey and unreliable then obviously don’t wholesale the deal to them.
Also, it’s very important to remain in control as a wholesaler.
Don’t let a buyer/rehabber jerk you around. If they don’t close on the date they’re supposed to don’t give them another chance, unless they’re willing to put down the rest of your wholesale fee. For instance, if the buyer needs to come up with $150,000 for closing and the rest of the wholesale fee they owe you is $8,000 (because they already paid a $2,000 deposit) then tell them the only way you’ll extend closing is if they pay you the $8,000 you’re owed.
And if they say no, then walk away. Don’t bluff, actually do it, and more often than not the buyer won’t want to lose the deal and you’ll get the money. However, if the buyer doesn’t want to play ball then you should always have a backup buyer to go to. In your buyers list (you need to build a buyers list ASAP if you don’t have one already) you should quickly be able to contact someone else who will be interested in the deal.
So from now on, evaluate your buyers a little more thoroughly and always have a backup plan in case the first person falls through.