Posted by Stacy (AZ) on May 18, 1999 at 16:37:40:
I assume you are referring to wholesale flips to investors/rehabbers. If done correctly, you will probably never have to put anything more than an earnest money deposit into a deal. This assumes you have a good buyers list, and you know how to buy at a good price.
However, there is the possibility that you place a property under contract and can’t get it flipped. Maybe all of your buyer/investors are tied-up with other properties, or maybe you didn’t get a low enough price, for example. Well, you could just let the contract expire and lose your earnest money. But then again, you did commit to buying the house, and the seller believed you. He may be counting on this commitment for economic reasons of his own. If you let the contract expire, you’ve just jerked him around. He could even come after you, legally, to perform on your contract even though it is stated differently in your agreement (and a judge may agree with him). This is a remote possibility. But, your reputation is also worth protecting: someone who performs on his commitments.
So, it’s a good idea to have a way to get the money you need in case you have to perform on the contract yourself. Even if it takes a short-term hard money loan until you can get rid of the property, this may be better than letting the contract expire.
My contract limits my damages for non-performance to my rearnest money deposit. It’s there for a reason, just in case the worst happens. But I hope to never have to rely on it. So far, so good.