Episode 202: Securing Deals 101

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Show Notes

Want to get that juicy paycheck in no time? Let’s join David Dodge and Michael Slane today as they show us the best ways to secure deals with maximum profit through property control. A bonus Legal transaction knowledge, the ins and outs of partnership, and how to engage transactions properly.

Things that will cover in this episode:

  • Legal Shield Reviewed Contract in : freewholesalecourse.com/
  • Types of Contract
    • Purchase / Sale Contract
    • Option Agreement Contract
    • Joint Venture Contract
  • Justifying the Contract

SERVICES MENTIONED IN THIS EPISODE:

Welcome back to the Discount Property Investor podcast. Our mission is to share what we have learned from our experience and the experience of others to help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate, the discount property investor way. To jumpstart your real estate investing career, visit freewholesalecourse.com, the most complete free course on wholesaling real estate ever. Thanks for tuning in.

David: Securing deals.

Mike: Alright, that’s what we’re talking about today.

David: That’s our topic man.

Mike: Is securing deals. This is fun.

David: So this is going to be picture, we’re not gonna get into too much detail about all the little stuff on this particular episode, we’re going to try to keep it big picture.

Mike: Well, we also- I think we have to keep in mind that we’re not lawyers, right?

David: Yeah.

Mike: So, we are not really giving legal advice, and securing deals, a lot of that is using contracts and contract law and some of the basics of that and again, we’re not giving legal advice. Just kind of a little disclosure there, but yeah, we use contracts all the time. It’s a part of doing business, you’re going to enter into contracts and quite frankly, you’re probably going to get sued eventually so, you know, I mean that’s just part of the game.

David: Hopefully not.

Mike: Yeah, your objective is not to, and your objective is to do right by people, and to put things in contracts that that are correct and accurate, and that help get you deals, win deals, and buy houses, flip houses. That’s the name of the game guys, buying and selling houses for profit. So let’s talk a little bit about securing deals. First step, to ever get anything under contract, what do you have to do Dave? It’s one of the most important things.

David: You have to make offers. It is literally impossible to get a property under contract if you don’t make an offer and send it in writing, end of story.

Mike: Have you ever sent a contract without talking to a person about the price?

David: Absolutely.

Mike: Like literally just been like oh, okay-

David: I do it on BatchLeads all the time.

Mike: I’ll let you know.

David: Hey, you know, I’m an investor in the area looking to buy a property, you interested in selling this one? Sure, how much? I’m typically buying them in this neighborhood for 70 to 90 grand.

Mike: I mean like a contract, like actually sending- so making an offer, 100%.

David: Oh yeah, yeah. That’s a little bit more rare, usually it’s a verbal of some sort or you at least ask them what they’re asking price is or you give them a ballpark on where you’re at. I’m sure we have Mike, I’m sure.

Mike: I just can’t remember it. I was just thinking about it, it was just like-

David: Yeah, right, but it’s still less common than-

Mike: How often would we just send a contract and get it back signed and be like oh, nice, that person wanted to take it, you know. I don’t know, I just can’t remember it. I’ve got a vague memory of somebody calling me and being like is this offer still good?

David: Well, let me rephrase it. When’s the last time a seller sent you a contract to purchase it?

Mike: Oh my gosh, almost never.

David: That’s the thing.

Mike: Yeah.

David: So, to flip this scenario-

Mike: That’s a great-

David: That’s the point, right? When is the last time a seller- you went to the motivated sellers house, you walk in and they have a contract sitting on the table waiting for you to sign it a deal. It never happens. You have to initiate the offer, wouldn’t you agree?

Mike: I absolutely love that.

David: So, that’s the thing I think that we should focus on.

Mike: That is an awesome example. People who want to sell their house direct without agents are usually not prepared to do it.

David: They don’t know anything about it.

Mike: They don’t know how- exactly.

David: They’ve never done it.

Mike: Exactly, they don’t know how to do it which is not a big deal so you have to be the expert. Make the offer, be prepared with a contract, so yeah making offers like Dave said. We do it all the time, sight, unseen. We do it all the time verbally, via text and Dave is getting out his.

David: There’s a little water in here too. We have so much stuff over here man.

Mike: His Propstream mug here.

David: So, the thing about making offers though that I want to really harp on Mike, is when you make an offer, you’re not necessarily saying to the seller that you are going to be the person that closes, right? That you are going to be the buyer. I like the transparency approach where I tell them hey, I would like to be the buyer but I got to find a partner. So, yes, I am going to be the buyer however, the contract is more about control than anything else, especially if you are brand new and I think a lot of people that are going to be taking our course are going to be brand new Mike, and probably listening to the podcast, they’re brand new and you know when you were first starting out, your first wholesale deal, what was the price? Ballpark it.

Mike: It was I think 4 grand.

David: Okay, mine was like 14 or 12, it was a low.

Mike: Not big deals.

David: But I didn’t even have that 14, did you have the 4?

Mike: I probably did, yeah.

David: You probably did, you’re a little wiser than me, a little better saver.

Mike: But I wasn’t- I wasn’t going to buy this house, it was Castle point.

David: Okay, so that’s my point though. Even though you said, hey, this will work. Let me go try to find a partner, you weren’t gonna- you weren’t planning on closing with your own money, but hopefully you had made it transparent to the seller that you needed a partner and that was part of the deal. So, the purpose of a contract to the newbie, to the investor that’s brand-new, doesn’t have any money, wanting to get into real estate for little to no money, it’s possible and it’s possible via contracts because contracts give you control. That’s all I got.

Mike: That’s excellent.

Both laugh.

David: But that’s it though, I mean really it’s about control. Now-

Mike: It’s excellent and I think what’s very important what Dave says is he wants to be transparent, he wants to be honest, which is I need a partner. So again, it’s making it very clear that hey, I may not actually be the one funding and buying this. It’s saying I need someone else, this also opens up the window for you to say hey, I need to bring my funding partner in later on down the road. So again, it’s a great way to set yourself up for success with the seller, you are saying I really really want to buy this house which hopefully is true and it is true, I do want to buy the house and close on it, and when I started, I wasn’t as savvy, I didn’t really do the assignment thing or anything so I really was planning on closing on it, you know.

David: So, that’s my next thing is that you have to have the intention to buy.

Mike: Yes.

David: There’s a big difference between just writing somebody an offer and maybe getting their hopes up and especially if you aren’t transparent and then you have to back out. That sucks, don’t do that. What I’m saying is go in with the intention of buying by finding a partner.

Mike: Very good, very well said Dave. I like that much better.

David: You see what I’m saying? I’m trying to simplify this. That’s the intention, hey I am going to buy your partner or your house as soon as I find a partner, but that’s the contingency. I know a lot of people have done a lot of deals, and the more you do, the more you can have confidence to tell your investors or I’m sorry, your motivated sellers that you can get this done but they’re going to have to hang in there with you for a little bit of time while you go out and you find that partner. So, the intention I think is important however, if you are transparent about your methods, let’s call it, right? Then you don’t ever have to buy any property, that’s the beautiful thing about the control. So, buying a property is very similar to or it’s the same exact thing as sending an offer to a seller that’s contingent on a partners approval, right? Because in the end of the day, the end goal is to buy the property from them even though it’s not your funds. So, I don’t know, I kind of muddied it a little bit at the end there but.

Mike: No, it’s good. You know I think-

David: You know, I think the point is it’s about the intention of buying however, you don’t have to be the buyer, you just have to have connection to them, but you have to have a control to even market to those people.

Mike: Yeah, it’s very good and I think- I’m very glad you clarified the point about intention because it is a very muddy area when we’re talking to new investors and advising people to go make offers on houses. Well guys, your intent should be to close that deal.

David: Absolutely.

Mike: You should not- otherwise that’s a-

David: Don’t have the intent of malice.

Mike: Yeah, exactly.

David: Let me try and promise them this: if you’re going to try, just be open with him. Hey, let me try to find a partner, in that case, we like options which we’re going to get to in a minute, right? But there’s lots of ways to use it. So, securing deals starts with making offers, ideally in writing.

Mike: Correct, so in my opinion this is where it gets kind of fun, so we’ve got- we suggest making a lot of offers, we harp on this, we talk about this a lot, you know, send them text offer, send an email offer, call him with an offer, but then actually putting it on a physical contract is super important and that’s the written offer and that’s what Dave was saying is you have to put it in writing. So, in my opinion, putting that offer in writing and sending it to them is only the beginning of the conversation about buying that property.

David: I love this.

Mike: Because from- this is where you get into a little bit more of the legal side of it, this is the only legal thing that really matters. Like again, if you go- if you end up in court or whatever, this is what’s going to be- this is what’s going to get you. I mean, this is the contract, this is what you signed, this is what they signed. So, this is both of the things that you’re agreeing to, so you’ve talked, you’ve talked, you’ve talked back and forth. This is what you agree to is the written part of the contract, so that’s the beginning of the conversation. Why is it the beginning of the conversation? Because of your CYA, because of your inspection period, because of your due diligence that you do, because of opening escrow, you’re going to get this- all these things are going to be checked out and we’ll talk a little bit about each one of those. So, CYA clauses, so cover your butt, right guys? This is- and this is not something that’s unique to wholesaling. This is very very standard in all real estate transactions is you have an inspection period and most residential sales have a full-on inspection, so they have a certified home inspector come out. Yeah, you usually pay them a couple hundred dollars and they go through every little thing in the house and they say this is broken, this looks old, you should replace this, the window seal’s broken, one of these tiles is loose in the bathroom, I noticed, you know all sorts of just- everything about the house, everything they could find.

David: Everything, you’re talking about 16 pages of reporting.

Mike: And the whole, in my opinion, the whole purpose of that is to discover defects with the property so that you as the buyer can ask for them to be one, fixed or two, repaired. So, that’s the whole- that is standard, so asking for the opportunity to investigate the property prior to closing on it is standard real estate practice.

David: Absolutely, regardless of how you-

Mike: Again, I just want to clarify that, so we do that in wholesaling. So, what are the ones that we use the most Dave? So, as we were talking about before with partners approval where we said I need to find a partner for this deal.

David: Right.

Mike: So the one that we like to put in there is this deal is subject to partners approval, so there you go guys, if your partner doesn’t want to buy it, then you can’t buy it.

David: Yeah, it’s very to the point when you say that, and I describe it to them as much transparency as possible. Now, I do have a lot of experience and I’ve done a lot of deals, so it comes a little easier to me than if you are new, however-

Mike: And you have a partner who will say no, if you want me to say no.

David: Right.

Mike: Same, which is nice.

David: But if you are new, that’s okay, you are still going to go find a cash buyer partner.

Mike: Exactly.

David: That’s what that person is, even though they’re buying it from you, you and them are essentially partnering together to fulfill the need of the seller which is to sell, so it doesn’t really matter, you know, in terms of how that gets done. So, make offers, control the property with contracts, have the intention of closing, but make it clear that you need to find that partner. Mike mentioned CYA and the best one and my favorite is partners approval, couple more that we can mention would be inspection period. I mean, that’s simple.

Mike: Exactly and again, like we said- like I was talking about, that is standard to all real estate transactions pretty much across-the-board people have inspection periods and perform inspections on properties, so again, you can throw that one in there. One that Dave really likes, and we’ve added since we started working together is subject to what is it, the examination of taxes-

David: Title and value.

Mike: Title and value, and I’ll let you talk about value cuz it’s-

David: Yeah, so that one is, it’s actually one of my favorites, this is more of- this is less about-

Mike: Oh, and I think the key word is subject to buyer’s opinion.

David: Opinion of taxes, title, and value.

Mike: So, that’s where it gets- that’s where it’s interesting because-

David: A) an opinion can be an opinion, it could be anywhere across the board. Taxes are pretty easily established and verified, title, similar, there can be muddy- there could be some gray in there, right? but it’s typically either clean or it’s not. If it’s not, you figure out what’s wrong and you try to work through those. If it’s clean, you’re done, so those two things are relatively easy to verify, taxes and title. Now, however values’ in there too, so again, the actual CYA is, what’s it Mike? opinion?

Mike: Yeah, subject to the buyer’s-

David: Subject to the buyer’s opinion-

Mike: Of taxes title and value.

David: Love it.

Mike: Yeah, so that’s how we put it.

David: So, that’s the CYA, so the taxes and title are easy, right? But the value is based upon your opinion, so if the value doesn’t work out, then you can exit the deal. So, this CYA clause is more of a- it’s more for a legal standpoint to prevent you from getting you know, sued if you don’t execute your contract for whatever reason, because you didn’t see the value, you know at the time of closing whereas you weren’t sure of it or didn’t know it at the time of contract. So again, it’s a cover-your-ass, truly a CYA clause. Again, be transparent that you still need an inspection period, or you need a partners approval. That’s the things that you want to have with the seller that are verbally explained, right? The taxes, title, and value, you don’t really need to explain it, I think it’s kind of self-explanatory but the fact that we throw opinion of buyer in there basically opens up any door to let you out of the deal without any, you know, rebuttal or them trying to come after you.

Mike: Yeah, exactly.

David: So that’s a really good one as well.

Mike: Any other CYA’s you wanna bring up? If not, I’m going to- I’m going to shift it somewhere if that’s okay with you.

David: Okay, so partners approval, inspection, buyer’s opinion of taxes, title, and value.

Mike: We have others, and here I’ll take over Dave.

David: Go ahead.

Mike: So we have other CYA’s in there and we actually provide you guys with a free contract at our course, so if you guys haven’t been to it, we mention it all the time, check out the free wholesale course. com, that’s freewholesalecourse.com. There you can find a contract that we use, we’ve used it in hundreds of transactions and most recently we had Legal Shield review our contract. So, this is the contract we provide, we had our legal- an attorney here in Missouri, so again, this isn’t going to be necessarily across the board, but we have had legal review of this contract and the reason that we did that is because we are in business and we decided hey, we need some legal protection because like I mentioned earlier, you’re going to get sued eventually. So, we pick up Legal Shield, we have it both, we’ll put a link below. You can check out some of the plans they have, very very, cool, but we had this contract reviewed so although CYA clauses that we put in there, we had an attorney look at and review, and they said yeah that checks out, it’s fine, it’s going to work, period. So, that’s very very cool guys, so if you want to use one of our contracts, check it out freewholesalecourse.com. If you want to check out a little bit more about Legal Shield for yourself, they can even help you set up your LLC, you can check them out or we can talk a little bit more about the different types of contracts so again, we’re gonna talk about our free one.

David: So that’s, I think let’s wrap up with that, yeah.

Mike: Let’s go into the three types that you can use to find deals Dave. So, one is just your traditional, your purchase contract, right? or a sale contract, purchase, or sale contract. That’s one I mentioned that we give away for free. So Dave what is-

David: We actually give away all three for free: the purchase, the option, and the joint venture, I believe.

Mike: Do we really? I thought those were just in the paid courses.

David: No, those are free, yeah, cuz they’re pretty simple.

Mike: The simple ones? okay.

David: They’re simple contracts, right. But there’s a- the purchase contract is-

Mike: Well guys, I may have to call those back because I didn’t know that Dave.

David: That’s right. The purchase contract is a little bit more straightforward, you are going to be purchasing the property from the seller, of course, you’re gonna have your CYA’s in there.  So, you need to be careful though that you have your timeframe set up properly and that you’re transparent to let the seller know that you are going to be using that time to do inspections and buyers through, find a partner, so on so forth. So, those contracts basically they have to be opted out of by you as the buyer in the event that you can’t find that partner, okay? The next contract is what we like to call the option agreement. The cool thing about the option agreement is it’s a little bit more of an inverse agreement, meaning it gives you the option to buy but you have to basically exercise your option, right? So you have to opt-in to an option agreement whereas a purchase agreement, you have to necess- you have to opt out in the event that you don’t. So, it’s two different kind of frames of thought here, mindsets, right? But the reason we like the option agreement is because when somebody is very motivated and they’re willing to let you try to help them, you can use an option agreement to gain- to maintain or gain control of the property so you can market it, but you’re not obligated to buy it. So, some really good scenarios are examples of where an option contract would come in very handy is thin deals. Deals that you are not confident about finding a partner, but the seller is motivated and they’re willing to do anything and they are- and you say hey, let me try, and they say okay, and if you don’t find any buyer, you’re not obligated to do anything, but if you do, then you can exercise the option and you can be the- you know, purchase the property, so thin deals I would say would be number one. Number two, just deals that the seller is ultra-motivated regardless of the price point, and anything that you can do to help them, they’re willing to take, right? So this is kind of not even involving price, this is more about the person. They just say, hey help me sell this property, I don’t really care how we do it, just help me sell it. Options are great, again, you don’t have to be obligated, but you have the option to do so and then last but not least would be our joint venture agreements. So, our purchase agreement is very direct, I want to buy this house, but it has some contingencies. The option agreement is hey, I’m going to try to buy it, so let me at least get some control so I can market it and if I can find that partner, I’ll let you know and then we will buy it at that point, but I don’t have to necessarily opt out of that one, right? Third and final will be our joint venture agreement which you can use with the seller, and joint venture with them in any way that makes sense for you and them, or you can joint venture with another investor who may have the deal under contract, and you have a buyer for it, or you have a deal under contract and then some other investor brings you a buyer, right? You can joint venture with that person, basically team up and do the deal to where you and that joint venture partner somehow split the proceeds of the deal or the profits. That’s it.

Mike: This is another great way to start investing or start wholesaling too. If you know someone who’s actively buying real estate and they’re like oh man, I want to get into real estate yada yada and you know what they’re buying, you can- again, essentially, if a wholesaler, you find someone else who has a really cool great deal, you’re gonna say hey I know somebody who’d buy that. Can I get- can I bring the buyer and get paid.

David: Yeah, what’s it worth to you? 50%? fixed fee, 2, 3 grand?

Mike: Exactly, then you can negotiate with that person, get something in writing, a joint venture agreement, bring it to the person who’s buying deals and boom, you get paid.

David: Love it.

Mike: Very good.

David: Couple different types of contracts, but we keep it simple, I mean typically, a purchase, an option and a joint venture are all you’re going to need to get started to secure deals, right? I don’t want to talk about the CYA’s on the BC’s cuz I think that’s for a later topic.

Mike: Yeah, it’s kinda- it’s a little bit different, sure.

David: Couple things that I do want to wrap up with, there are some tools that will help you to secure a deal, okay? So, when you are out in the field and you are talking with a seller or even on the phone, have the mindset that it’s you and them versus the market, not you versus them, okay?

Mike: 100%.

David: I think this is very important, reason is because you may disagree with the seller on the ARV and you may disagree with the seller on the repairs, so what you want to do is make a friend with this person and try to make them understand the ARV and why, so if that means bringing a phone, laptop, iPad to the appointment to show them the comps and a realistic number, then that’s what you need to do, right? You need to verify and- or not verify but get them on the same page as you. It’s not you versus them, it’s hey Mr. and Mrs. seller, let’s see what the market can bear and then let’s work our numbers backwards. So, getting them to agree that the property has an ARV of whatever you think it is, is very important, so you want to convince the person of a number that’s agreeable to both you and them, okay? Secondly the repairs, we have a repair estimate sheet that we offer, and this will also help you if you’re new to determine the exact repairs of a property. We also have a software that we love using, rehab estimator pro, which is very helpful, but this- even a simple sheet, you can sometimes have the seller walk around the house with you and circle the items and you can actually make them part of the process of determining your repairs and then at the end of that process, they’re going to tell you what the repairs are which is very very helpful. So, having an ARV that’s agreeable, having a repair estimate that is agreeable is going to help you determine a good price, but the thing that is what I’m getting at here is you want them to see your offer as a fair, validated, thought-out, calculated offer, not just a low offer. Those are two totally different things. Any offer can be a low offer. My goal is to make a low offer but validate it and back it up with proof to show the seller hey, this is what it’s going to be worth when I’m done, you can agree right? Here’s five other houses on the street that all came within, you know, 5 or 10% of this range. Okay, boom. Now, you can also agree that to get it to be there, it’s not there today, to get it to be there, it’s going to require 40 grand worth of work and we both walked around this house hopefully and looked at all the stuff that’s going to be- need to be retouched, replaced, repaired, updated and both determined that 40 grand was going to be a reasonable estimate. Then you just run your MAO formula and you can explain it and there’s a sheet that we like to use called the sellers net sheet and this is a very good tool to help- my favorite thing, I’m going to sum it up in one sentence: justify your offer. That’s what this sheet does, it takes the low offer off the table and now it’s a reasonable offer, same number, right? But now it’s a reasonable offer that’s justified and verified. This is one of my favorite tools because it makes those low offers now have value and show that it’s a fair offer not just a low offer. So, summing it up, you got to make offers guys. If you don’t make offers, you can’t have control which is what you need to wholesale or buy a house. You got to have control, go in with the intention of closing on it, but be transparent with your sellers that you have to find a partner or shop it to your partners or whatever, just don’t lie to them and tell them that you are the cash buyer, right? Tell them that your partners are, but your job is to find these deals and you’re very confident you can get it done because you’ve done it ten times in the past, so on, so forth and get some time. You do that by securing the deal with the contract. You can use one of three things, you can use a purchase contract, an option contract, or a joint venture agreement to get access. All of these agreements are going to have CYA’s. Those CYA’s might be partners approval, inspection periods, or buyer’s opinion of taxes, title, and value, very simple. We just use those three, there is no need to have 57 CYA’s, keep it simple. And then last but not least, make a friend and justify your offer using a seller’s net sheet or a repair estimate sheet and/or comps to get them to see that your offer is fair and that’s it. That’s securing deals 101. What did we miss Mike?

Mike: You know Dave, I think that’s a great way to sum it up is that anyone can make a low offer but working with the seller, making a friend, and getting on the same page with them or getting them on the same page as you or vice versa, just- it really is getting on the same page as them and seeing that it’s a fair offer.

David: Not you versus them, it’s you and them versus the market.

Mike: That is the way to win more deals.

David: That’s it guys, securing deals 101. Thanks for listening.

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