If you’ve closed countless deals, putting them together becomes second nature to you. However, if you’re new, it’s a totally different story.
Fortunately, in this episode, virtual investing mastery’s coach Lauren Hardy shared how you can effortlessly put together deals and not get pushed around. She also talked about some of her experiences when she first started out and the cardinal rules she adheres to at all times.
In addition, Lauren also provided proven and tested negotiation tactics that has worked for her. Hey, it just might work for you too! Plenty of helpful insights in today’s episode, so don’t forget to tune in!
- Why it’s important not to lose control if you are the contract holder
- What earnest money deposit (EMD) is
- Why collecting EMDs is ideal
- How much the typical EMD should be
- Why EMDs are important
- What you should include in your assignment agreement
- Why you should choose your escrow company
- Why it’s ideal to partner with someone when you’re new
If you are Ready to Explode Your Wholesaling Business, Click here to Book a Free Strategy Session with me right now!
Subscribe to Wholesaling Inc
You are listening to the Wholesaling Inc Podcast. I am your host, Lauren Hardy. And if you guys are new to listening to this podcast, I want to welcome you. If you guys are one of our loyal listeners, thank you for continuing to support our podcast and listening to us. But I decided to jump on today because I’ve seen some stuff go on with our community, a lot of questions about dispositions. And I wanted to take some time to just talk about it and give you guys some tips when putting deals together.
Putting deals together when you’ve done it a bunch of times, it’s easy. It’s second nature. You’ve got these rules and you never waiver from them. But when it’s your first few deals, it’s very easy for newer investors to get pushed around by end buyers. So I wanted to take the time today to talk about some cardinal rules, some rules that I don’t ever waiver from, and I want to just really help you guys be able to be a deal pro, to be able to put your deals together, feeling confident. So after you listen to this podcast, you guys will feel like you guys are like deal mastery right now.
What are some things that are super important when you are selling a property to another investor? A lot of us, we’re either maybe assigning our contracts, if that’s what you choose to do, or you are closing on the property and you are reselling them. But specifically to other investors. And these other investors are either fix and flip investors, they’re developers or they’re landlord buyers. What are important things to remember when you are negotiating that deal between the end buyer and yourself? Well, I will get into it. And I will definitely want to illustrate it with some stories, because story telling is the way we remember things.
So I had some students putting deals together over the weekend, and they were really getting pushed around by their buyers. I had to really work this deal with them because it was going to blow up. It was like I would die before I let that happen. I realized that there were a few things that they didn’t know and probably, a lot of people don’t know. So I wanted to get into them.
The first thing is that when you are a contract holder or you have the property, you are in control of that property. I want you guys to not lose control. You are in the power position, remember that. So you’re going to make the rules and you are not going to let the end buyer push you around too much. There are a lot of ways that end buyers will use their influence and try to get you to accept terms that maybe you wouldn’t normally accept. And there are certain terms that you need to be really, really firm about.
The first one would be an earnest money deposit. What is an earnest money deposit? Earnest money is essentially a down payment to show good faith, that they do actually intend to buy the property, perform on the contract. I have seen end buyers try to get out of putting EMDs down, and I’ll tell you a story of this happening to me. In Nashville, we had some hedge fund buyers. It was a pretty hot and heavy hedge fund area. These hedge funds, they would get these realtors in the area to be their representatives, and the realtors would go around talking to wholesalers like myself, and they would essentially, get our contracts under contract.
So a realtor approached me and said, “Oh, I am the representative for XYZ hedge fund, and I am in charge of everything. I put the deals under contract, I coordinate the inspections, I do everything right.” So I thought, “I’m talking to the right guy and this is great, and I’ll form this relationship. Oh man, this is wonderful.” So the first go at it, we put it on and we come up with a verbally agreed price. I send him an assignment agreement and he sends me back an assignment agreement. It has no earnest money, that’s wiped out of it, and there’s other terms in the assignment.
He adds that he has inspection contingencies of X amount of days. He has all these other contingencies he threw in there. Essentially, it completely changed the verbiage of my assignment agreement altogether, and it changed the nature of the deal. And I thought, “Gosh, wait. So for me to work with you, do I have to work with these terms? How many of these can I now say no to?” At the time, I was newer and I didn’t really know. I didn’t have good reasons for striking out stuff that he sent me. So I just took it and I signed it. There was no EMD, that was very important. Sure enough, he put the thing under contract, he inspected it and he pulled out. And there was no EMD to hold him accountable.
He had the contingency dates, so he wasn’t accountable there. It was really disappointing. I later found out that this was very common practice for these representatives of the hedge funds. They would essentially tie up as many properties as they could from other wholesalers, but they didn’t use EMDs really to keep them accountable. And they would put inspection contingencies on the assignments, so they had an out contractually. So I learned I will always, always collect an EMD. My EMDs are nonrefundable when I’m assigning contracts, and I do not put in inspection contingencies in my assignments.
They have one chance to inspect the property. We walk them through, and then they give us their best and final offer. If I accept it, they have to give me an EMD. It’s usually at least above a $1,000, and they do not have an out from there. At that point, it is non refundable. There’s no inspection contingencies. Sometimes you’re going to have to be flexible. If say, there’s some foundation damage and I don’t have any other buyers that are any better, then yeah, I might say that they can get a foundation expert in there, and it’s because I don’t have any other options. I might work with them and give them a chance to inspect further, and I might refund their EMD in that situation.
Obviously, EMDs are refundable. Well, this might not be obvious, but EMDs would be refundable if we can’t deliver a clear title. If the seller for whatever reason cannot convey the property to that end buyer for whatever reason, maybe it’d be title issues or that the seller is not performing, of course, they’re going to get their EMD back. But holding an EMD really is our way of securing that we have an end buyer in place, because I don’t want to be in that situation where we’re a week before closing an escrow or a couple of days, and that buyer pulls out. And they have nothing holding their feet to the fire. So very important. EMDs are so important.
Another thing that is huge is how long? What is the expectation of them actually signing the assignment agreement and depositing this EMD? Another example would be that you have this property under contract and you now send over an assignment to an end buyer, but where people mess up is they don’t make that assignment agreement expire after 24 hours. Instead, they just send it. There’s no expectation, so that end buyer can hold that property hostage essentially. Take their sweet time to sign the assignment. Sometimes if they never do, and now you’re in this position of going, “Oh my gosh. Well, wait, I found a better buyer. What am I going to do? They could sign it three days later. And now I have a situation where I have two buyers and one property. What am I going to do?”
So I always make sure that my assignment agreement has the language that it expires within 24 hours. My assignment agreement is dated. So it’s very clear that this end buyer has 24 hours to sign it. Otherwise, it’s null and void. I also make sure that the earnest money is deposited within 24 hours as well. That is very important. I have had end buyers sign assignments, but then drag their feet with the EMD. And then they start requesting things like more inspections, or can I get it back to you because I’m on vacation? Or this or that. Any time I start getting excuses from end buyers when it comes to depositing EMDs, I know that they are playing me.
This is not my first rodeo, my friends. So I go tell them to pound sand at this point. And I have it in my assignment agreement and all my contracts, the language that protects me. All of my language protects me very well, so I can tell them to pound sand. That’s a very important one. A lot of people don’t think about this until it happens to them, but you want to make sure that you’ve got some kind of expiration on your contracts. And that really goes with all of your contracts. You do really want to have expirations in there.
Another thing that is pretty important to me, and I am pretty inflexible about this unless there’s a few cases where I might not be, and that would be that I choose the escrow company. In every territory that I’m in, I’ve got my favorite escrow companies and I give them repeat business so I get a good deal. But it’s not really about the price, the discount that they give me. It’s more about the escrow company being investor-friendly, being wholesaler-friendly. They are willing to be quick and to prioritize my deals. They give me good customer service, they don’t mess up. I love picking escrow companies in transactions. I usually like to control that.
If an end buyer who’s buying the property off of me insists, I want to use my escrow company, and they will from time to time, I always say, “Listen, no. Part of the deal is you’ve got to use mine, or it’s no deal.” If they really are willing to walk away and I have no other end buyers in line for the property, then I might inquire a little bit more as to why they’re being so inflexible. It could be that they say, “Well, I just get a discount. That’s why.” Well, guess what? I do 50 plus a year in this territory and I get probably a better discount than you do. So a lot of times, I can basically negotiate this and the end buyers end up doing what I want them to do. But if they don’t and they’re being super, super insistent about this, which sometimes they will, I will ask if I can have their contact, the escrow company’s contact and I will vet the escrow company out myself.
I’ll say, “Do you work with other wholesalers in the area? How quick can you close this deal?” I ask them different questions like, “Do you know what a double closing is? Do you do one HUD for everyone, or can you separate the HUDs and have, say a HUD between myself and the seller? And then a HUD between myself and the buyer?” I ask the more technical questions that some of you guys might not even know to ask, but I ask these questions to see if they have answers. If they don’t know what I’m talking about, if they literally say something like, “What is a double closing,” I am like, “Oh, this is probably not going to be great.” And I will go back to the end buyer and insist again that we use my escrow company because I don’t have faith in yours.
So after a while, after doing several deals, being firm on these principles, I would say that most of the time end buyers comply with my rules. If they are not willing to comply, it’s usually because you’re not delivering the message with enough control and with enough knowhow to deliver. That’s why I like to illustrate with stories. I like to go back and say, “Well I had this happen, but we had a bad experience.” For example, we went to an end buyer’s escrow company and the escrow company completely messed up. We ended up having to settle it out after closing, where I had to write checks and settle it out because they couldn’t even put the final settlement statement together correctly.
What I start illustrating stories, the end buyers realize I know what I’m talking about, and they feel comfortable. A lot of times, end buyers, the reason that they insist on their escrow company is because they actually don’t feel comfortable with you. And they don’t really fully trust that you know what you’re doing. So if you could portray that you know what you’re doing, they will be more open to following your rules. Now, that leads me into the topic, what if you don’t know what you’re doing? What does somebody who’s completely new to wholesaling do in this situation? And my answer to that is you need to partner with someone who does.
I think it’s very important that you don’t do your first few deals on your own. I think it is great that you have the guts to try to do it, but don’t be a hero. Do not try to do these kinds of transactions on your own at first, when you’ve never done anything like it before. You will avoid so many headaches if you just partner with somebody who knows what they’re doing. If you are in that situation, you’re brand new, partner with somebody who knows what they’re doing and they can help you put that deal together and deliver these messages, these rules that I’m talking about with full confidence. That way, your end buyer feels more confident in you.
Anyways, if you want to learn more about virtual investing, investing in an area that is not your backyard, if whether that’s out of state or a couple of hours away, or maybe you live in a different country, my program is awesome. So go to www.virtualinvestingmastery.com. I would love to have you guys a part of the program. But either way, follow me on Instagram because I share a lot of awesome free content, all things virtual. All right guys, thanks for listening.