While the wholesaling process is pretty straightforward, there are certain techniques you can use to ensure you are able to maximize the profit you’ll get from every deal. While unknown to many, there are 3 different ways you can sell your deals to ensure maximum profit.
In this episode, Mr. TTP himself discussed in detail the 3 options you have when it comes to selling your deals. You’ll surely learn powerful techniques and insights in this episode so you better have a pen and paper handy!
- What a double escrow is
- What transactional funding is
- Difference between assignment and double escrow
- The pros and cons of each
- Great way to protect yourself
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Hey, it is Brent Daniels, Mr. TTP, and this is exciting because we’re talking about the three different ways for you to sell your deals. And that is exciting because you have a deal. Of course you do. You’re taking the instructions. You’re taking action on these instructions, and you’re out there building a healthy pipeline of leads and they start popping one after another, and it starts getting exciting. Your momentum is start building like a train going down the tracks, okay? But I’m going to break down the difference between an assignment of a deal, a double escrow and a double close, okay. It starts with the three parties.
First, we have the distressed property owner, right? We’ve got a distressed property owner. We’ve got powerful you, look how powerful you are. That’s because you take action. That’s because you’re being proactive. That’s because you’re not waiting around for business to fall into your lap. You’re going out every single day and having quality conversations with distressed property owners. And then you’ve got your cash buyers, right? These are the people that are going to end up buying your deals. The three parties, very simple.
Now, first, obviously you go out there, you’re having these conversations, you build your lead pipeline, and you have a deal. You work with this distressed property owner and you put together a purchase contract on their property, okay? Now you have the right to purchase their properties with the price and terms that you agreed on. Yes. Now we’re in the driver’s seat, baby. Now we’re working it. Now we have the opportunity for so many different things.
Listen, you could buy this and live in it. You could buy this and flip it. You could buy this and wholesale it in the three different ways I’m going to break down, but you’re in the driver’s seat. Once you learn that sourcing real estate opportunities is the foundation of a successful real estate investing business, you win. You win big time because you will always have inventory. You will always have the opportunity to do any one of those exit strategies that you want, which is really exciting.
Traditionally with wholesaling, you’ll assign this contract, you’ll assign your rights to purchase this house to a cash buyer. Now, this cash buyer buys this property, right? Their cash goes and they buy this property. They get the money. They pay off the seller. You get paid in assignment fee, okay? That’s exciting. You get an assignment fee. And that can be anywhere from 2000 to 100,000, but we’ll break down why I don’t want you to take big assignment fees in a second. I’ll go through all the pros and cons of that, but then you have some different options.
Let’s break down: what is a double escrow? This is awesome. Now you have to talk to your title company and see if they do double escrow. Some do some, don’t talk. To your closing attorney. Some do, some don’t. My suggestion is make a post in any of the fix and flip groups or investment groups that you belong to and ask in your markets who are the escrow officers or closing attorneys that do double escrows.
Now, essentially, what a double escrow is, is you’re going to buy this house. You’re going to perform on this contract that you have. But you’re also going to have another purchase contract with your cash buyer. All right? And what a double escrow does is the money come in and actually funds your purchase, so you don’t have to come out with any funds to be able to purchase the funds from them, funnel through you, to them.
Now, there’s disclosures that are in place. The title company takes care of all of that, but just ask them if they do a double escrow, and that’s the flow of the money, okay? Very simply. Now, a double close, some places just don’t do double escrow, some title companies just aren’t comfortable with it. They want you to come in with your own funds, and that’s fine. But that means that you have to bring the money for this transaction, and then these guys are going to actually pay you off on the same day. It can be within the same minute, the same hour, but you actually have to wire in the funds to purchase this property. That is a double close. That’s when you start hearing about stuff like transactional funding.
Let me explain transactional funding. There are literally lenders that take all of the different contracts. They look at the deal. They make sure that it’s a deal. Make sure that you’ve got everything lined up, make sure that these people have money. And what they’ll do is they will give you money for five minutes or 10 minutes or a day. Typically it’s no more than 24 hours or 48 hours. It just depends. But they will give you the money to buy this property. 100% you don’t have to come out with any money, if they believe that it is a deal, and it should be a deal because you’ve already got a cash buyer that’s coming in behind them to pay off the loan that they’re giving you.
That’s transactional funding and you can Google it. Find somebody that’s local. I don’t like the big national companies. It’s just tough to communicate with them. A tip here is find somebody that’s local that does transactional funding. Now, the disadvantage of that is there’s going to be some costs. Typically, it’s a point or two points for them to give you the money for five minutes or 10 minutes. But I’m telling you, once you build up a reputation, you can start decreasing the amount of money that they charge you as an origination fee, and you can get it down to $1000, maybe a little bit more.
How amazing is that? Can you imagine, how confident would you be on every single deal if you knew you had an unlimited amount of money that they will give you to buy deals, as long as you’ve got a cash buyer buying it the same day, but you can go out and buy all of these properties? This transactional funding is absolutely powerful. I want you to look into it, and there’s some huge benefits to it.
Let’s look at the pros and cons of each. Let’s look at the difference between an assignment and a double escrow, okay? Now, with an assignment, you keep more money. You buy a house for 100,000. I mean, you put it under contract for 100,000. You can put it out there and sell it for 125,000. You make a $25,000 assignment fee, all right? It’s beautiful. It’s clean, right? And there’s no other costs, right? There’s nothing else chipping away at that. They wire you the $25,000. You get to keep all of it. So, that’s huge.
But the cash buyer knows how much you make. They know, they see it on the settlement statement, if it’s not already on your assignment agreement, which typically it is on the assignment agreements. But if it’s not, they’re going to see it at close, right? Sometimes cash buyers start getting a little bit chippy, a little bit mad that you’re making too much on this deal because you negotiated hard, because you’re implementing the things that we talked about, about getting the price low and building up your cash buyer database. Sometimes they get a little bit salty and then they start kind of throwing some wrenches in at the end of the transaction that make you nervous to try to get you to take less for the deal, right?
If you’re feeling that, if you’re new and you feel like these cash buyers know more, or you’re just uncomfortable, I highly suggest you do a double escrow, double close, if it’s a deal over $15,000. Typically under 15,000, you’re not going to run into too many issues, but maybe sometimes you are. But let me explain to you why this is better, if you’re feeling nervous, okay?
Because, one, they don’t know how much you make. You can be making $150,000. They don’t know how much you make because you put a purchase contract on with them. You’re not assigning the deal to them, all right? You’re literally buying a property and selling it the same day, and that makes you a real investor. Wholesaling is not real investing. Let’s not get it twisted here. Wholesaling is sourcing real estate opportunities. Being real estate investor is owning and selling or owning and holding property. That’s the definition, all right? So, it makes you a real investor, which is awesome. It protects your earnings, right? They don’t know how much that you’re making or closing on it. And so, the deal is the deal. There’s no way to get salty because they don’t know what price you locked it up at.
It’s a proof for your business. If you do a double escrow, double close, it proves to those other distressed property owners, “Hey, listen, look at these five properties I bought. Look at these 10 properties. Look at these 20 properties that I’ve bought. This shows you that I do close deals, Mr. and Mrs. Seller.” It shows because you are actually on the title. You go on title for 15 years seconds, but you’re recorded on title, okay?
But you’ll net less, and let me explain why. Because when you purchase the property… Remember, when we’re talking to distressed property owners, we tell them, “We’ll pay all the closing costs. We’ll pay all the title and escrow fees or attorney fees.” When you agree to that on your purchase contract, you have to pay those fees when you purchase, okay? Now your cash buyer will pay it on when you sell that deal. But when you purchase it, it’s going to eat up about 2,500 to $4,000 of your profits.
Now, remember we talked about transactional funding. If you do a double close, now you have an origination fee for the transactional funding… the transactional lender. And that could add another 1% to 2% of your purchase price, and that’s going to reduce the amount that you make. That’s why you have to decide, “Do I want to protect my earnings or do I want to net more?” This is a big distinction.
And what I will say is, once you build a great reputation, once you have buyers, cash buyers that you work with a lot and you know they’re not going to bring emotions into how much you make, they’re not going to count your money, then you can feel more comfortable doing assignments. But in the beginning you can start doing some double escrow, double closes if your title companies will do it. They’ll do double closes. I’m telling you. Because you’re literally buying it and selling it the same day. But the double escrow, definitely check with them, all right?
You net less, and the title company makes more because there’s two transactions happening on the same day. They get paid on the first and then second, “But man, the title company is making too much money.” That’s fine. Guess what? If the title company is making money, they love you. They love you. They will bend over backwards for you. They will help you out with anything. You can call on any favor you want because you are bringing them so much business. This is a positive, okay? And the recordings show the buyers actual price.
Now, let me explain something to you. When you assign a deal, when you give that $100,000 deal, and you assign it for $25,000, it records at 100,000 because that’s the purchase contract that you assigned to them, okay? It doesn’t record it 125,000. So, if it’s at 100,000, now your cash buyer, if they flip that deal, they have to explain to an appraiser, if they have a traditional buyer, why there’s such a big spread from what they bought it at to what they sell it at. So, they have to convince them.
They’ve got to say, “Hey, listen, look at my closing statement. I actually paid 125 for this, not 100.” And they just have to make a case for it on the appraisal. But if you do a double escrow, it shows that you bought it at 100 and it shows that they bought it at 125, so it’ll show what they actually paid for it, which is a benefit to your cash buyers because it reduces their chance that the appraiser will think that they’re making too much money on a deal, which sometimes happens. Not often, but sometimes it happens.
Anyway, with an assignment, there’s less paperwork. There’s less paperwork because you’re not closing on the deal. You’re not signing all of the closing documents with the title company. It’s just a lot simpler, a lot easy. If you’re starting out, if it’s under 15,000, do an assignment. If it’s over, do a double escrow, double close. Just make sure that the costs aren’t chewing into all of your profits, okay?
Look at every single situation differently. If you’ve got a deal and you know the cash buyer doesn’t care, you know this cash buyer has got a good reputation or they were referred to you or you’ve done business with them before, then if you feel comfortable, do the assignment. You keep more money, but this is a great way to protect yourself and to make sure that your deal doesn’t blow up at the last day because of the emotions of a salty cash buyer.
I always want to protect you. I always want to keep you rolling forward. Remember, when all of these things, all the drama comes up or all these things come up in a transaction that prevents us from going out and hunting for more opportunities. So, I never want that to happen. I want things to be absolutely smooth for you. Determine which one you want to go with, which strategy you want to go with when you lock up a deal. Rock and roll. I love you.
If you’re interested in joining the most proactive group in real estate investing go to WholesalingInc.com/TTP. Check out the TTP program. It’s WholesalingInc.com/TTP. Scroll down, check out all the testimonials, check out what it’s about. If it feels good in your gut, sign up for a call. It’ll either be with me or my right hand guy. I look forward to working with you. I love you. Get out there. Talk to people. See you.