This Insight should be titled "How Not to Lose a Huge Profit... " but I wanted to show readers what can happen when inexperience and unnecessary urgency come together to kill a giant profit. When I say giant profit, I mean that we were looking at an $80,000 profit on a wholesale deal with no money in the deal. Typically about 8% - 10% of our wholesale deals are larger in size - from $40,000 to over $100,000 profit, so this was a good one.
This new Mentor Student was doing as he should have, farming an area of properties that he knew very well. He found a direct seller who had listed his property but was an absentee owner and was looking to get rid of this unwanted property. The price he was asking was in excess of $400,000 and the Student put it under contract. The After Repaired Value (ARV) was well in excess of $550,000. Remember, the Student did not have money to close the A - B leg of the transaction but he knew the funds would be available if it was a deal.
The Student next got a contractor's estimate of repairs that was in excess of $120,000 and presented it to the seller. Almost without hesitation, the seller agreed to an $80,000 price reduction. With this discount the property was a real deal because the seller's original asking price was at full market value for the condition of the property and not all that likely to be wholesaled very quickly.
The student wanted to advertise the property immediately especially since the owner was not living in the property and it had a lockbox on it. The lockbox allowed the student to send buyers to the property without having to be there to meet each one. This is the method we use whenever possible to wholesale properties if there are no appliances or other items that can be stolen from the house.
Almost as soon as we started to advertise it, we got calls from other investors and rehabbers to see the property. In addition, we got offers at the listed price we had put it out at which was only slightly above our contract price since we were counting on our profit being in the discount the seller had agreed to verbally.
This technique of getting a seller discount after the property is under contract is a common tactic that wholesalers use to make bigger spreads on their deals. It requires asking the seller or listing agent for a discount after the property is under contract and before the inspection period is over. In all cases, an Addendum to the original contract must be signed before the inspection period is over to make sure the seller actually ทาวน์เฮ้าส์มือสอง ราคาถูก gives the discount at closing.
This price reduction should be called a "repair credit on the HUD" if you are dealing with a listing agent so that his commission on the sale is not reduced since the purchase price doesn't change. If you are dealing with the seller direct, your Addendum should say it is a price reduction so you pay less in closing costs.
In the case of the Student above, one of the prospective buyers brought his contractor with him to see the property. As almost never happens, the seller appeared at the property and announced that he was the owner and, of course, the Student was not there. Usually this wouldn't have mattered because the buyer would know the property was being resold. Buy in this case, the contractor for the buyer approached the seller and said he would pay the full list price the seller wanted and not ask for any discount. In just seconds the contractor's offer literally killed the $80,000 discount that was promised to the Student!
The contractor knew what he was doing and simply didn't care if the student didn't make any profit; in fact, he was likely hoping the student didn't close. When the student told me what happened, he said he felt "abused" by the contractor and that people shouldn't do that. He's right but at stake here was money and people will often do nearly anything for money.
In summary, if it isn't in writing, it isn't real. Don't get so excited that you overlook the basic steps of getting things done correctly as this method of deal-stealing is a common tactic with unscrupulous wholesalers and rehabbers everywhere in the country.
To your limitless success!
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