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Beware of the Weasels - Real Estate Investing

Beware of the Weasels - Real Estate Investing

When you are wholesaling properties you are guaranteed to run across some buyers who are under-capitalized, under- educated, or just flat-out unethical! If a person doesn't have a lot of money or just hasn't studied up enough on real estate to be prudent in their decisions, then by all means don't hold it against them. We were all probably there, or may be now at that one point in real estate.

You will find that even thoughit does take some time when you cultivate a business relationship with those less experienced, it can pay huge dividends. Be a free mentor to those individuals as your time permits. You will learn things yourself, but it will all come back to you in a positive way in real estate somehow.

Now, you will learn how to sniff out weasels pretty quickly from the personal questions you will learn to ask. You make the rules about which buyer gets your wholesale deals as long as you are not discriminatingagainst a person based on race, color, creed, sex, religion, or any other legally protected status. However, you have every right to discriminate on who has the potential to tie up your great wholesale deal based on sound financial analysis. That is why you want as much written confirmation as possible that your buyer will in fact close on the deal and, in return, will get you paid. This part is important, to say the least.

As your career in real estate progresses, it is inevitable thatyou will come across individuals whose ethics of conducting business are wrong and, in some cases, downright illegal. This is probably true in almost any form of business, and real estate is by no means immune to this. Anyone can put a contract on a property, but not everyone can do everything they stipulate in their contracts.

Here's a quick example of what not to do from the "hard knocks" learning file. A wholesaler has a buyer from whom he accepted $500 earnest money held by his attorney on seven different properties. Needless to say, the wholesaler was looking forward to a nice payday. The investor talked a big game and was knowledgeable about real estate, but the wholesaler didn't do his due diligence on the investor, ask for bank approval letters, or get an earnest money deposit commensurate with the scope of the deal (even though they were junker houses). In the end, the investor didn't try to hide, but he simply wasn't ableto close on the deals. He walked. The wholesaler was left with $500 in earnest money and title work bills on seven different properties, not to mention the sellers of these properties, with whom he then had to scramble to renegotiate and buy more time to get them all closed out.

All of these pitfalls and monetary losses could have been avoided by just taking a few more minutes of due diligence by pre-qualifying the buyer. The lesson learned: Don't take the first bait thatcomes along! You may get individuals who try to wholesale your wholesale deal. In many cases, this is fine. However, you need to pre- screen the actual buyer yourself. Let your middleman know that you will honor the deal and won't cut him out, but you need to make sure the end buyer can actually do the deal.

You can learn how to sniff out sincere individuals who do try, but who don't meet your qualifications. You will also know how to recognize the true weasels that you need to stayaway from.

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