How to Spot Red Flags When Wholesaling a Property!

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Episode Transcript

Speaker 1 (00:06):
Welcome back to Wholesale and Red Flags.
Today we're going to be talkingabout end buyers trying to
renegotiate some of the termsinside of our transaction.
Now let's fast forward to wherewe are in the process.
You've done lead generation.
You've taught the many sellers,gotten all those voicemails,
hangups and you finally get aproperty under contract.
You've taught the many sellers,gotten all those voicemails,
hangups and you finally get aproperty under contract.

(00:27):
You do recon, you get pictureson it and now you do your
marketing for dispositions andyou get an end buyer to finally
go out and make you an offer.
But there are some terms thatwe need to discuss, and so today
I'm going to talk about threespecific renegotiations and why
it could be a red flag onwhether or not you should go

(00:50):
with that in-buyer or, if youask the right questions, why
maybe you should accept thatrenegotiation.
Now.
Number one is your in-buyer iswilling to sign an assignment or
a contract if you're doing adouble close, but they want an
inspection period.

(01:10):
Now, inside of the majority ofwholesale transactions, we do
not allow an inspection period.
Right, it's?
Please, buyers, please do allof your due diligence before
making an offer or signing acontract.
However, there are somescenarios where you should allow

(01:31):
your end buyer to have aninspection period.
Why is this important One?
An end buyer is truly awholesaler's customer.
They are someone that youshould try to sell 100, 200
deals to, not one or two dealsto.
So you want to make sure thatthey end up with a great deal.

(01:53):
It ends up being a profitabletransaction for them.
So, yes, as much as we want tosay buyers, do all of your due
diligence up front, sometimesthere are certain things that
just can't be done, and alsounderstand this.
We as wholesalers have ourprocess.

(02:14):
The end buyers also have theirown processes, and so sometimes
it's very important for us tounderstand why would you need an
inspection period?
Now take, for example, insideof TU, we have Travis Wells.
On every single deal thatTravis Wells buys, he gets a

(02:36):
formal inspection done of thatproperty.
Why?
That's his process, and so heis not going to want to sign an
assignment, put downnon-refundable EMD unless he
could get that inspection done.
Now, as soon as the inspectionis done and nothing comes up, of
course he's willing to put downnon-refundable earnest money

(02:58):
and sign that assignment.
But he is a great buyer and canbe a repeat buyer for you.
So here's how I would suggestnavigating this.
One ask the end buyer why doyou need that inspection period?
And here's the red flag thatyou're really looking for in
this you wanna verify that theytruly are an end buyer, and

(03:21):
whatever explanation they giveyou as to why they're doing this
signifies that it is all withthe intention of purchasing this
property and protecting theirinvestment.
What you're really wanting tolook for is make sure that
they're not daisy, chaining yourdeal and trying to wholesale it
to someone else.

(03:41):
Now there's even scenarios inwhich you can sign an assignment
with another wholesaler andgive them an inspection period,
for example, new WesternAcquisitions.
There has been numerous timeswhere we have gone out and the
highest offer that came back wasNew Western Acquisitions.
All right, how many inspectiondays do you need?

(04:04):
I need three days.
Okay, we're going to give youthree days.
We'll put our other buyers onice, keep them in the wings, see
if New Western could actuallyperform.
There's many times they have.
There's many times they haven't.
When they haven't, we go backto the other buyers that had the
lower offer, and when they doperform, we make more money.

(04:25):
So, understanding this scenarioand understand the thought
process and the reasoning.
That's why you should or shouldnot except your end buyer have
an inspection period.
It's not a deal killer, it'sjust a business transaction and
making sure that you're settingeveryone up for success.

(04:46):
The second renegotiation term apotential red flag is they want
to deposit lower earnest money.
Now, again, this goes back towhat is the reason.
Why do you want to deposit lessearnest money?
Now, what I will tell you is ifI do a deal with someone that's

(05:06):
inside of Titanium Universityor someone that I know, someone
that I've done quite a bit ofbusiness with, then I absolutely
will lower the earnest moneydeposit.
It's about establishing awinning relationship for the
long term.
It's not really about this oneindividual transaction.
However, if it's a new buyerthat I've never done business

(05:28):
with and I don't know if theyactually can perform, then I
will not renegotiate earnestmoney.
In fact, this is one of thelargest red flags as to them,
signifying that they might nothave the capability to perform.
Now, one of the other thingsthat I absolutely look out for
as well is if there's ever amention of I'm going to be using

(05:51):
a gator lender or atransactional funder for my
earnest money, because that is amassive red flag in the fact
that if you cannot even depositearnest money, how are you going
to be able to fund this deal?
Going back to the first episodeof Wholesaling Red Flags what
is your funding source and doyou have the cash to close if
you are using a hard moneylender?

(06:13):
So if there's ever a mention ofa gator lender or an earnest
money deposit lender, that is amassive red flag for me and I'm
kind of running for the hillsand trying to find an actual
legitimate buyer.
The third term that can berenegotiated and is very common
is I want.

(06:33):
The end buyer wants to changethe title company.
Now, again, this is one ofthose areas where the thought
process is very important andsometimes it does make absolute
sense.
The end buyer can say listen,I'm actually the one that's
paying for the closing costshere.
It's coming out of my proceedsand I want to be able to choose

(06:56):
who I'm spending my money with.
And a lot of times, what theend buyers will tell you is Well
, I'm doing a lot oftransactions with this other
title company or this closingattorney.
I've already negotiated lowerfees, escrow fees, title costs,
and so I would rather go hereand I'm more comfortable closing

(07:16):
with this attorney or thisescrow officer, and that makes
sense.
However, you as the wholesalerneed to protect yourself.
However, you as the wholesalerneed to protect yourself and the
fact that you don't want to goahead and open up title and
potentially spoil thatrelationship with that title
company by then saying, hey,we've got to move this to
another title company.
Or end up with an invoice inyour email saying, yeah, you

(07:39):
asked us to open up title andthen you moved it to another
title company, but we hadalready done the work, we had
already pulled a titlecommitment.
Here's an invoice for two $300.
You don't want that to happen.
So when this is presented to youask what is the reasoning?
And if it is purely basedaround the dollars and cents,

(08:01):
say, well, why don't you sendover your most recent settlement
statement or your HUD and letme send that over to my title
company and see if they canmatch those fees that you have
at the other title company?
Many times the escrow officeror that closing attorney will
say, well, yeah, I would ratherhave some dollars than no
dollars.
So, yeah, I can match it onthis transaction so I can keep

(08:23):
this deal.
Sometimes they won't.
I can match it on thistransaction so I can keep this
deal.
Sometimes they won't.
That's all about thatrelationship and their
willingness to be able to buildthat relationship with that
other new end buyer.
So in each one of thesescenarios, the context and the
thought process from your endbuyer is important, but it could

(08:44):
also be a potentially massivered flag Having an inspection
period.
Why do you want an inspectionperiod?
Are you a daisy chainer?
Are you trying to get funding?
What is the thought process andwhy you need an inspection
period on a wholesale realestate transaction?
Lowering the EMD Is it becauseyou don't have the money?

(09:06):
Is it because you're afraidthat you're not going to perform
, because you don't have thefunding yet and you don't want
to lose a lot of money?
Or is it because, truly, youjust don't want to have tens of
thousands of dollars sittinginside of escrow at all times
because you do volume?
That makes sense.
And then the last one changingthe title company.
Is it because you have arelationship, because you close

(09:27):
10, 15 deals every Friday atyour title company or with your
attorney?
That makes sense.
Or is it because you want to gowith that title company because
you know that yourcommunication is going to lack.
You have a tendency toterminate deals at the last
minute and that other titlecompany will cover for you,
because you have therelationship and we don't.

(09:47):
Each one of these is a red flag.
Each one of them can beacceptable.
Do your job and communicatewith these buyers and find out
what's going on and take controlof your transactions.
All right, guys, that's ourepisode of Wholesale and Red
Flags.
Let me know if you like thisnew series.
If you do, give us a like onthe video and we'll see you next

(10:10):
week.