12 MAJOR Red Flags Every Wholesale Real Estate Deal Must Avoid!

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Chapters

• 0:06 Spotting Wholesale Red Flags
• 1:30 Suspicious Seller Behavior Signs
• 2:29 Buyer Red Flags to Watch For
• 5:17 Joint Venture Warning Signs
• 7:53 Property-Specific Deal Killers
• 11:33 Communication Breakdown Red Flags

Transcript

Speaker 1: 0:06

let's talk about a dozen red flags that you need to be aware of when you're looking at doing a wholesale real estate deal. Number one seller will not get on the phone with you. Now, this is coming from a guy that did hundreds, if not maybe even a thousand plus deals just from SMS texting. Okay, we're not doing SMS texting anymore for marketing outreach. So if we're reaching out to them and they're refusing to get on the phone with us and conversate, there's a chance that this is a scam. So, yeah, you can still lock the deal up via text message, but you need to be very leery of why do they not want to get on the phone with me? If they're not willing to do that, I'm not willing to send them a contract. I need to have a conversation with them. I need to make sure that they're the actual owner, that they know enough about the property, enough details that they can convince me that they're a legitimate seller. Otherwise, we got to postpone sending that contract.

Speaker 1: 1:10

Number two the deal seems too easy. It's too good to be true. This is where I like to talk about the seller buckets. The seller bucket of price is right. There's no motivation If you're talking to a seller and they really don't ever explain to you why they're motivated to sell this property for a discount again. You're probably looking at some sort of scam judgment, lien tax bill, something that's going to kill the deal later on. So if you don't identify any sort of motivation, just be completely honest with the seller and say Mr and Mrs Seller, I understand you're giving me a great price of this property, but you've got to explain to me what's going on. Why are you selling this property to me for such a good price? Because otherwise. Why are you selling this property to me for such a good price? Because otherwise, too good to be true is actually too good to be true. Number three title company taking too long to process the deal. Man, one of the worst ways in the world to lose a deal is by the title company dropping the ball and the seller blaming you, the buyer, getting cold feet because the deal's taking too long. Listen, transaction coordination is a vital part of what we do as wholesalers. The title company does not care about your deal closing as much as you should. They're not there to coordinate this transaction. They're just there to process the paperwork and process the funds. It's your job to stay on top of them, stay on top of the communication with each and every party involved in the transaction and make sure that the title company doesn't take too long where you end up losing the deal.

Speaker 1: 2:57

Number four the buyer is shaky with explaining how they're going to fund the deal. What I mean by this, mr Buyer, how are you going to be funding this deal? Oh, I'm going to be using hard money. Awesome, which hard money lender? How are you going to bring the cash to close? Do you have a gap funder? Are you using your own money? My favorite is when the end buyer says I'm going to be using a private money lender. Okay, what does that mean? Do you actually have the private money lender? Do you have to go raise the private money? These are vitally important as a wholesaler to understand, because the last thing in the world that you want to do is assign your rights to that contract to a buyer and they not have the ability to perform. So when you're doing dispositions yeah, I know it sounds sexy when the buyer says I'll take it at your asking price, I'm ready to put earnest money down, but you want to make sure that they can actually perform. So if they cannot explain to you how they're going to fund that deal. You might want to move on to the next buyer.

Speaker 1: 4:01

Number five the seller is slow rolling you on giving you access to the property. Man, timelines are important. We always put a closing date on each and every one of our contracts and it's vitally important that we get our recon aka pictures and access set up so we can get our buyers in there to do their walkthroughs, so we can get offers. One of the things that kills a lot of wholesale deals is when we get the property under contract and then it takes us a week just to gain access, to get pictures, because a lot of times time is of the essence and time kills all deals. So if your seller is slow rolling you on giving you access, you need to be firm in your communication. Mr Seller, if I do not get access in the next couple of days, I'm going to have to send you an extension to the contract closing date because of the delays of gaining access to the property. This is why we also have access instructions on our contracts. The seller agreed to give us reasonable access to this property, so if they don't, we have every right to extend that contract.

Speaker 1: 5:15

Number six people start to ghost you, man. This gets scary. I've had title companies ghost me, buyers ghost me, sellers ghost me, jv partners ghost you. Listen, you've got to put an end to this immediately. And sometimes we're a little bit afraid to be aggressive in our communication when someone starts to ghost us, because we don't want to offend them. We don't want to send something that could potentially kill the deal. Listen, you're going to lose a lot more deals by someone ghosting you than being overly aggressive in your communication to get them to respond. And what I mean by aggressive is call, leave a voicemail and send a text message, whoever it is. Listen, I need you to respond to me because I'm feeling like this deal is falling apart because the lack of communication coming from you. At the end of the day, sometimes life does happen. But they should understand that the seriousness in your voice is based around trying to get the transaction finished, not to offend them.

Speaker 1: 6:14

Red flag number seven Someone reaches out to you. They say man, I've seen all those deals you've been closing online and I want to do a joint venture. Awesome, send me over the details. And then they send it over and there's no contract and they say just add your fee on top. Listen, this is a huge red flag for me. We don't do that. I need to see your purchase and sell agreement. I want to see that purchase to sell agreement. I want to see that you're direct to seller and with. The only way we are gonna do this deal is we're gonna do a 50-50 split. Now I understand there's other people out there that will do less spreads and that's fine. I don't need the deal. You reached out to me and you said you want my expertise and dispositions and I will do that for 50% of the profit. That being said, we are going to have clear communication and expectations of how this is going to go, and if the joint venture partner will not be open about everything that's going on in the transaction, I run away from that transaction.

Speaker 1: 7:15

Another huge red flag on joint ventures is when you ask the joint venture partner for that contract or any sort of information and they say my partner has that information. Listen, I have a partner. She's about 10 feet away from me every single day. What do you mean? You've got to get that information from your partner. You should have it, whether it's in a Dropbox, a Google Drive, just a communication between you, an email box. If they can't get that, it screams they're daisy-chaining that deal. I'm out. Red flag number eight An attorney has to be involved in the deal.

Speaker 1: 7:53

That's the whole red flag. Listen, I honestly cannot stand attorneys. I don't know how they get paid. I think they get paid when deals close and they just really deep down hate money because attorneys are deal killers. There's attorney states, there's some of the most difficult states to get a deal across the closing line. Why? Why, because of them. And then when the other party maybe a buyer or seller says I need to get my attorney involved on this, I need them to review the contract Red line, changing the language in the contract, changing terms. Listen, guys, we do simple transactions, cash transactions. I'm not talking about a Novation Sub 2 seller finance or any of that mess. I'm talking about a normal wholesale transaction. Mr Seller, I'm buying your $20,000 shit box. We don't need the deal-killing attorney to come in. I hate attorneys being involved in my transactions.

Speaker 1: 8:54

The largest red flag of them all Red flag number nine when some party involved in the transaction, whether it's your end buyer or your seller, wants to change the earnest money, deposit or contract language, this is a huge red flag for me. One of the things that I hate to see, especially with newer wholesalers, is when they say my buyer didn't perform't perform. And I say, well, at least you got that $5,000 non-refundable EMD right and they said the buyer said he could only do a thousand dollars, or he was a known buyer and so I only made him put up a hundred dollars EMD. See, this is a red flag right from the beginning. Mr Buyer, if you're serious about buying this property, why won't you just put down the earnest money deposit that I am requesting. If language in the contract needs to be changed, it needs to be very clearly defined as to why that needs to be changed, and it's up to you to have the intuition and the wherewithal to make the decision on whether or not you feel comfortable doing that. More often than not, the answer should be no. That's my contract. I've written it that way for a reason.

Speaker 1: 10:09

Red flag number 10 during deal analysis, the house is big man on the block because of an addition or an enclosed garage. This is a huge red flag. One of the things we always want to avoid is getting a property that lacks actual comparables. What I mean by that is. Subject property is 2,000 square feet, but the entire neighborhood is chock full of 1,100 and 1,200 square foot properties. The neighborhood is an 1,100, 1,200 square foot neighborhood, so your 2,000 square foot property now is big man on the block and it's going to be really hard to achieve the necessary value that is needed for that property to work out for your end buyer. Your end buyer is also going to be scared off from this property because what happens with additional square footage is more rehab is needed. The other thing that you need to be aware of when it comes to additions and enclosed garages is was the work permitted correctly? A lot of times, homeowners will go out and they'll do the work themselves or hire a contractor that doesn't pull a permit. And then your end buyer the first questions they're going to ask is was that addition permitted? This is a big red flag. Honestly, more often than not, we like to walk away from these types of deals.

Speaker 1: 11:29

Red flag number 11. All right, this is a big one. The seller starts to ghost you. All right, this could happen for a multitude of reasons. A lot of times, guys, we're dealing with motivated sellers and that means they have a lot going on in their life. So sometimes we do need to be a little bit understanding about that. So in our communications we do need to be consistent and make sure that we're always communicating with them. What I've learned is, a lot of times newer wholesalers get ghosted by sellers because of their lack of communication initially with the seller. So make sure you're constantly communicating, make sure that every time you call, you're leaving a voicemail and you're also following up with a text message. The other thing is transaction coordination wise, you always want to be sending an email to the title company and the seller, making sure that everything feels warm and fuzzy. That being said, when you are ghosted by a seller, this is one of the largest red flags and it could end up leading to a dead deal. So you want to make sure that you get in touch with them one way or another.

Speaker 1: 12:38

Red flag number 12. When you reach out to the title company and you ask them my buyer said he was using said hard money lender have you communicated with the hard money lender? And the title company has not heard from the hard money lender. This is a massive red flag. A couple of things are happening here. One, that hard money lender has not been notified of the deal. Two, your buyer's probably not an actual buyer and they're probably trying to daisy chain the deal. Something is amiss here, because I'm going to tell you I've done hundreds of hard money loans.

Speaker 1: 13:17

One of the things that you're going to do every time you apply for a hard money loan is you're going to give them the purchase sale agreement, the assignment, and then you're also going to give them the title company's contact information. The reason why is because that hard money lender wants to immediately see that title commitment and start working on preparing docs for closing. Hard money lenders notoriously move very quickly, much faster than a conventional lender on these transactions, so they have a process down. So the best way to identify whether or not your buyer is moving forward with that transaction is not to communicate with them, but just straight to the title company, go to that third party source that's unbiased and say, hey, is this happening or is it not All right? Not alright, guys, that's the dozen red flags that you need to look for in a wholesale real estate transaction. Let me know if I missed something in the comments. Show me some love, give me a like on the video. We'll see you, guys, tomorrow.