NO DEAL – the two most frightening words a real estate investor can ever hear.
If you’ve been in real estate investing for any period of time, there probably has been a deal or two that have gone south on you. Let’s face it, no matter how hard you try to dot all the ‘i’s and cross all the T’s, things can happen to derail your deals, which are just out of your control.
This could include:
- The buyer has problems with the lender, sometimes called their “financial partner”. This term is investor speak for “I’m weaseling out of the contract”
- A low property appraisal
- Learning there is more worked needed that first anticipated
- Discovering additional liens or judgments that need to be satisfied
About a week ago I had a wholesale deal collapse at the last minute. Actually, it was 30 minutes before closing, that the buyer sent me a text that they were not going to complete the transaction. I felt like this……
Then I recalled how a few months ago I had to pull out of a purchase for all of the reasons listed above. So the morale of the story is this, “it ‘ain’t over ‘til it’s over” actually “it ‘ain’t over until the check clears”. So just know that just about anything can go wrong up until the check clears your bank.
So how can you prepare yourself for a deal not going to settlement?
Here are some ways to help soften the blow of a deal going south:
- Don’t spend the money until you have it in your little hands
- Have multiple exit strategies, including doing the deal yourself
- Be prepared and know that everything in this business always takes longer and cost more than: your best laid plans; your spreadsheets; expert written estimates and even a mentors advice.
- Have a good written contract that is either prepared or reviewed by a real estate attorney or a licensed real estate agent.
- State in the contract that buyer has a short, but reasonable, due diligence “study” period. For properties from 1-4 units this should be no less than 5 days and no more than 10 days.
- Put in writing, that the study period does not begin until the Buyer sends an earnest deposit to a neutral third party i.e. your settlement attorney.
- ALWAYS, ALWAYS, get a deposit and I don’t mean $10! It should be no less than $500, and make it non-refundable when their study period ends. This will help to soften the blow if the deal does go south and you left with title processing fees.
- NEVER, NEVER, stop marketing for a back-up buyer and get them under contract. Be ethical and honest with both buyers. If the first one doesn’t perform and the second one does, give the first one back their deposit, even if you don’t have to.
- Get proof of funds with the contract, and do your homework to see if they proof provided is real. How? Call them, Google if they are local go visit them. After all, you might need them in the future for your own deals.
- Try to stay as calm as possible, talk a walk, watch a funny video or call someone your care about before blowing your top!
Just remember, no matter how hard we try some deals just never get done, but there is a buyer for every deal, as long as it really a deal! Your job as a seller is to find the buyer for your deal, and get them to the settlement table.
Feel free to comment and give your advice below.
Best of luck and I hope this helps.
As always, here’s to your continued success.
Creator of www.TheDeedXChange.com