How can real estate wholesalers stop end buyers and sellers from cutting them out of the deal?
One big issue in the world of real estate wholesaling today is end buyers and sellers working together to cut investors out of the deal, and go behind their backs. They’ll connect, and make a separate deal on the sale, without having to give the wholesaler their profit or assignment fee. According to some real estate brokers this has also become more common in real estate in general over the past few years. It’s sad, but true. Going through all the work and investment to secure a deal, and then to be robbed and conned out of your compensation for all of that doesn’t just hurt. It is very expensive and can bankrupt you if it happens too often. What can you do about it?
Peer Pressure
Positive peer pressure and leaving appropriate online reviews can help. Don’t do business with those who have cut other investors out of their deals. There is no reason they won’t do the same to you. Leave appropriate reviews about the situation online to warn other investors. This may be a longer term play, but it will only get worse if good investors don’t make the effort to protect the industry.
Contracts
Make sure your contracts are clear and in writing. Consider including clauses which will deter these situations. Perhaps expanding the length of time your assignment fee or profit applies, and even if the deal falls apart. This may be hard to enforce legally, and is something you must consult a real estate attorney on every time. Yet, it may be a good deterrent.
Double Close
While this issue can come up in any scenario it is probably most common when wholesalers are trying to assign their contracts, and when buyer and seller find out about each other and the difference in prices. This can be avoided by using two separate closings. You purchase the wholsale property directly from the seller, and then have a second back to back closing with your end buyer. Normally this can be within 72 hours. Using transactional funding you don’t need to have your own cash or a conventional loan to do it.
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