My first deal - did I forget something ??? - Posted by Corey

Posted by Corey on March 07, 2002 at 06:59:38:

Thanks for the great advice !

The house is in good condition, during my walk through I couldn’t see any real problems other than some painting that needs to be done. The carpet didn’t even look like it needed to be cleaned. So I can’t see repairs being more than $2,000.

The sellers told me there are no liens or second mortgages but I’m waiting to get the contract signed before doing a title search.

I reviewed home sales in the area and found that in the past 6 months homes are selling between $240,000 - $265,000. An almost identical house a block away went on the market this week for $249,900.

This is a hot market where prices are going up fast.

My first deal - did I forget something ??? - Posted by Corey

Posted by Corey on March 06, 2002 at 23:45:36:


I was hoping some of you more experienced investors could look at my first deal and tell me if there is something I’m overlooking or should pay special attention to.

I found motivated sellers who are in a divorce situation with the wife living in another state. The sellers have verbally agreed to my offer and want me to fax the contract so the wife can review & sign. Then I’ll meet with the husband to sign.

Here is the deal:

$172,000 Purchase Price
$ 500 Binder Deposit
$ 2,000 Repairs At Most

$250,000 After Repaired Value

The sellers have a $140,000 Non-Assuming VA loan & want out quickly. They said no to Lease/Option, Option & Subject To but agreed to an all cash deal where they get their loan paid off and walk out of settlement with $32,000 if it can be done within 40 days. They also want me to pay all closing costs.

The only Purchase and Sales Agreement I have is the one from Ron LeGrands Cash Flow System which I guess will have to do.

My goal is to get the property under contract and then wholesale it to an investor for $220,000 by assigning my contract.

Does this seem reasonable? Is there something obvious that I’m overlooking? If I don’t get the contract assigned quickly will it be hard for me to line up alternative financing in the limited time that I have? And if so, what type of financing would be best if I just want to flip the property - a Hard Money Loan?

Any advice you more experienced investors can give is greatly appreciated.


Re: My first deal - did I forget something ??? - Posted by Anne-ND

Posted by Anne-ND on March 07, 2002 at 08:48:31:

Hi Corey,

I buy, rehab & hold (usually do not sell or assign). But here’s what stands out to me in your post:

1- Know your P&S contract inside out, and have it checked by a local attorney. LeGrand’s contracts have some internal inconsistencies, and the laws on real estate vary greatly state-to-state. I have used Bronchick’s forms modified to suit my needs, but also use the local realtors’ board P&S contract. The latter you can modify to fit your situation, but have been vetted in the local courts of law. Whatever contract you use: understand it!!

2- Right now it sounds like the sellers are in control. They want you to buy for all cash, give them $32K, pay all closing costs and do it in 40 days. What are YOU getting? Remember, you are helping them out of a situation. You can always buy another house, but they have to sell this house. Be ready to walk if you don’t get the terms you want, it gives you more power, and if you do walk today, you may get a call from them in two weeks, and then they’re willing to do what YOU want.

3- Here’s what you MAY be getting: their equity. I’m not so sure on this one. Be sure to get an inspection clause in your contract. Just because you didn’t see anything wrong with the house doesn’t mean it doesn’t have a problem with asbestos, mold, poor plumbing, shoddy roof work, etc.

4- the fact that you asked “If I don’t get the contract assigned quickly will it be hard for me to line up alternative financing in the limited time that I have?” tells me that you shouldn’t be even considering this deal. Have you checked with a mortgage broker to see if you could perform on this contract should you be unable to find an assignee? And have you investigated the local investor community? Do you know what THEY want in order to take over a contract? What they want (e.g., seller pays at least half of the closing costs) will determine how much money you get for the assignment, or even if you can assign it. This goes back to #1: if the P&S contract is weak, then it will impact the value of the assignment. One place to find local investors is your nearest REI association. Get thee to a meeting.

5- In your response to Tim it sounds as if your estimate of value for this house is based on the recent listing price of a nearby house, not recent selling prices. Have you been in the listed house yet to see how different it may be from this house? You may be in a location where most sales are significantly less or more than listing price, find that out.

I don’t mean to stomp on your dreams. This could be a great deal for you, I just don’t have a sense that you’ve identified potential buyers to whom you might assign this, and I sense that the sellers are thinking they’re in control. Don’t give up control, and only buy when it makes sense to you and you KNOW it makes sense. Be sure you understand the risks you are taking before signing any contract.

Good luck to you,


Re: My first deal - did I forget something ??? - Posted by JoeS

Posted by JoeS on March 07, 2002 at 07:08:03:

Some good answers. If the property is really worth 250K like you said, I would proceed. In your offer with the seller, make sure you put in there that you are buying “subject to good and marketable title”. I also put the closing date “on or about 45 days after the completion of the title work”. The title may be messy and it may take a while to clean it up. You do NOT know this until it is done. You shaould have the clause that “during the escrow period the buyer shall be allowed to show the property with a 24 hour notice to prospective tenants”. A motivated seller will not object to this clause.

As far as wholesaling it, I think 220K is a bit steep. I would go around 200K. Remember, when you want to wholesale, the wholesaler makes the lion’s share of the profits. You want them back as a repeat customer so don’t knock them over the fence on the first deal!

I would try to BOTH retail and wholesale, whoever bites first gets a great deal! Hope this helps.

Re: My first deal - did I forget something ??? - Posted by Tim Fierro (Tacoma, WA)

Posted by Tim Fierro (Tacoma, WA) on March 07, 2002 at 03:23:25:

Just off the top of my head, verify all your numbers.

Is it really only $2k to bring up to full market value? Have you did an area comps on this house to make sure it really is worth $250k? If your numbers are right, and you have 40 days to close; I would be looking to snatch that baby up!

Even if you bought it with your own financing, you are looking at only 70% of full market value. It’s not that hard to put an ad in the paper, after you get it under contract,

! Beautiful Home !
x bed / x baths
Need to close by
April 10th, 2002
$250k or Best Offer!
Bring All Offers
I need to sell now!

Accept any offer that makes you some money, close to the mark. Be negotiable, very negotiable on price. But be VERY STRICT on contingencies. I would only give 3 days for any contingencies and that would include financing. Get a good earnest money up front. If they need longer, tell them these are your conditions and it is the first one with the money you need, gets the house. Tell them to come back if they can meet these conditions, but the house stays on the market until you get someone pre-approved and ready to close.

You don’t want the guy with full offer of $250k, close by April 10th, but wants 30 days to see if he can get financing. You want the guy who says I am pre-approved and I can inspect tomorrow and here’s $5k earnest money, but I can only give you $220k. No problem, you wanted $220k. :slight_smile:

Work with the price, as you have lots of profit. Work with the earnest money so you are covered for your expenses if you can’t get the deal to close and you are out. Remember, any serious buyer that is looking for a house is going to have a few $K for their down payment, so it is available to them. But don’t give too many days for any contingencies as it will cut down on when you have to close. If earnest money is on the line with no contingencies, the buyers are going to make sure they close so they are not out their money.

Review your contract documents and make sure you understand them. There is no deal until you get it signed by both sellers. Verify all your numbers, or the deal may not be what you think. Pay the extra for the bold ad with a few extra lines; you want to stand out as desperate to sell. Put the cell phone as the number to call you on and pick it up when it rings. If you don’t have a cell phone, go get one so you have this available for the ad. You want someone thinking about it to call you and get you right now. If an agent says will you work with them, say yes, but you need pre-approved buyers and they need to close by April 10th. Tell them you will give them $5k if they can make it happen, you don’t work on percentages.

Now, that’s just me, your milage may vary.

Re: My first deal - did I forget something ??? - Posted by Kristine-CA

Posted by Kristine-CA on March 07, 2002 at 01:15:56:

I am not that experienced but I am wondering if the divorce is causing the sellers to walk away from so much equity, or if it’s really there. Since I don’t know what kinds of things you have looked into, some of these will seem very obvious. Please don’t take offense. Have you checked liens against the property and against them? And you are sure there isn’t a second mtg somewhere? And are you sure about those comps? What about an appraisal or an BPO?

I know that people in extreme circumstances walk away from a lot of equity and this could be one of them, but if they are willing to close in 40 days I wonder what’s preventing them from putting it on the market at something less than 220K but that would give them more.

Just my thoughts. Others here will have more insight.

Sincerely, Kristine

Re: My first deal - did I forget something ??? - Posted by Shawn (OR)

Posted by Shawn (OR) on March 07, 2002 at 01:10:15:


First off, let me specify that I am new to this as well so hopefully someone a bit more experienced will chime in, but I just want to offer a few viewpoints. Take them as you will.

Second, good work at getting out there and finding deals, finding sellers, and most of all, taking action.

The biggest concern I see about flipping this property is the $220k you’re looking to sell it for if the ARV is $250k. When I do the math I find that to be about 88% of the ARV. Most buyers I have talked to are looking to pay somewhere in the 70-75% area of ARV. Not to say you can’t find someone to pay $220k, but I think you might be better off dropping your sales price quite a bit. You seem to be shooting for a $40k plus pay-off on a flip. That’s pretty extreme, but more power to you if you pull it off. By lowering the price you sell for you will lose on profit, but flip much more quickly and get on to the next deal wiser for the experience.

If you are just looking to assign the contract, then you shouldn’t need to seek financing as you don’t need to finance, that is your buyer’s concern. You also shouldn’t need to worry about closing costs other than to let your buyer know that they’re responsible.

I hope this helps a little. Like I said, hopefully one of the local vets will give some input and we can both learn a thing or two. Best of luck on the deal.