We bought a little three-bedroom mill house recently, that we had intended to keep. The problem was that we got so busy working on other projects that the house sat for a while. We kept rationalizing that since we got it at such a good deal, it was OK for it to sit. But after two months, we could see that it was costing us money just sitting there, and we decided to sale it to an investor in “as-is” condition.
We put it on market for $40,000 and promptly got three all-cash offers. Let’s examine those offers and see which was the best.
Offer No.1 was for full list price. They offered to close by the end of the month and to pay for all the closing costs. They asked for a 14-day due diligence period.
Offer No.2 was for $35,000. The buyers offered to pay all the closing cost and only wanted a 7-day due diligence. But, we had to pay a 3-percent realtor commission.
Offer No.3 was for $32,000 with no due diligence. The buyers offered to pay all closing costs but needed an additional two weeks to close due to travel.
Which offer do you think we should have gone with? Let’s analyze.
On the surface, offer No.1 sounds the best, right? It has almost everything you could want. It was for full price, and we would have paid no closing costs or commissions. But there was something fishy about it. It called for a 14-day due diligence period. That’s a longer-than-normal time frame on an all-cash deal. This made us start asking the buyer questions.
We found out that the offer came from a wholesaler down in Atlanta who was hoping to get our property under contract and use the 14-day due diligence period to find an investor who could actually purchase the house. He would then assign them our contract for a fee. If he couldn’t find someone to buy the property before the 14-day period was up, he would just cancel the contract.
Wholesaling is a great way for beginners to get their start because you don’t have to have access to the funds to do it. You just need to be willing to beat the bushes to find motivated sellers and get their house under contract. Once you do, you sell that contract to an experienced investor.
Most investors enjoy working with wholesalers because they help us buy, and in this case, sell more houses. Let me say this: we would have been totally good with this wholesaler making a profit on our house. I know that sounds crazy, but we listed it at a price we felt comfortable with. If he could sell it to someone else and get paid in the process, we were good with it.
But this guy wasn’t from our area, wasn’t experienced and was offering us a contract for cash on a property that he knowingly could not perform on.
In other words, he was representing himself as a cash buyer when he wasn’t one. This is not the right way to do business.
If you are going to be wholesaling, a better way to approach sellers is to be transparent. Instead of telling them you’re a cash buyer, let them know you are working with investors who buy houses for cash.
Ask the seller if there’s any reason they wouldn’t want to proceed if, like in our case, you could get them a full price offer. Once they agree, explain exactly what you are going to do and let them know there is a possibility that your investors might not want to go through with the deal.
In doing so, both sides know what to expect. And even if you did have to terminate the contract, no one will feel like they got duped. And that’s a good way to do business
In the end, we didn’t believe the wholesaler could perform. Even though offer No.2 was lower, it had a serious buyer and netted us the most money. And that’s the one we went with.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.