The Anatomy of a Wholesale Deal: A Case Study
In this guest blog post I will share with you one of my latest closings every step of the way from lead generation to closing. This particular property introduced many new challenges that I had not yet experienced in my real estate career such as: dealing with Power of Attorney and selling a property with a tenant in place. But that’s the great thing about real estate there is always more to learn and room to improve, whether that’s more efficient marketing, rapport building techniques or making offers. This is one of the components that make real estate both so rewarding and challenging.
Every lead originates from somewhere. In this case one of the criteria I use is absentee owners with high equity. I find this information from my local appraisal district. For my marketing piece of choice I prefer postcards. Some investors like to use yellow letters; however, in my own personal split tests I have found yellow letters generate more calls, but the overall lead quality tends to be much lower than the calls I receive off post cards. But that’s a discussion for another blog post. I first began mailing this lead in December of 2012. I continue to mail every lead on my list every 3 months for a year. This results in them receiving my message 4 times annually. For this particular lead I did not receive the first call until August 2013. It took a grand total of 8 months for the seller to contact me. Many would be real estate investors give up on mailing after having a poor result on the 1 month, so keep mailing!
I don’t want to get too specific here, but this case involves a father and his daughter. The father had been living in a nursing home and his health was failing, and they were running out of money to pay for his living arrangements due to a delay in health care approval. The father also had a rather severe case of dementia, and as such was not of “sound mind” to make any real estate related decisions. Thus the daughter had been granted power of attorney. This property needed to be sold before the 1 September to maintain the fathers living arrangements. This seller was under the gun and needed to liquidate the house fast, and had less than 2 weeks to do so. However, the direness of the situation was not fully revealed to me until I had gained the sellers trust at the appointment.
When I go on appointments the last thing on my mind typically is the house. At the forefront of my mind is building an excellent rapport with the sellers and trying to connect with them anyway I can. I genuinely care about their problems. Of course that is not to say I don’t hop on the MLS and research what’s going on in that area, or drive the comps and all the other stuff we must do as real estate investors. No, I work on building an excellent rapport first with the seller so I can earn their trust. This allows me to get properties under contract even when my offer may not be the best.
This appointment was a little more challenging. The property had been turned into a rental unit to help cover the father’s medical bills. The property also used to be the fathers primary residence. There was a full family renting out the property now. Not only did I have to bond with the seller, but the renters as well. I knew when I would later have to show the property to my funding partners it would be a challenge if the tenants gave me trouble. The tenants seemed to like me, but also a bit resilient since the property could be sold. Let me make it clear, they did not want to move. To make it easy as possible
I took very good pictures and a walk through movie of the property while I was there on the premises. This would make it MUCH easier to move the property later when I had it under contract. Other investors were scheduled to take a look at the house that day as well, however the seller felt so comfortable with me she canceled the remaining appointments (see I told you that rapport building thing would come in handy). The seller also began to reveal to me truly how dire the situation was touching on some of the details I had discussed earlier regarding her father’s living situation.
Making the Offer & Contract:
In this particular instance I wasn’t confident enough to make an offer at the property. Instead I called back later that evening and made her a fair offer based on the market value of the property and the amount of repairs it needed. Since this property was tenant occupied, and I wanted as few people looking through it, I was a bit more aggressive in my pricing.
The seller took my offer well but was hoping to receive a little more for it. I continued to educate the seller on the nature of the repairs (quite extensive) and the fair market value of the house. The seller needed a day or two to think about the offer. In the mean time I submitted a PDF offer for her records via email (a nice professional touch). A few days later the seller decided to write it up, so we met and filled out the contract.
Showing the Property with the Tenant in place:
Immediately after signing the contract I began putting together my property overview packet. Although I had a 10 day option, I didn’t sit around and do nothing for a few days. From the moment the contract was executed I put myself under the gun, I became the motivated seller and had the packet ready to market to potential funding partners. Unfortunately for me, this particular property was in an area where I had ZERO established buyers. The first night I had this one under contract was probably one of the most stressful nights I have ever experienced. I really wanted to help the seller, I didn’t know what to do showing the property with a tenant in place and ultimately wanted to perform on the timeline they needed.
Fortunately I started getting some calls and one of them was a big investor in the area that I knew I could trust, although this was the first time I had met with him. I gave the tenant a call and scheduled another appointment to look at the property.
We both arrived at the property and I could see the tenant from the drive way, he looked very annoyed and displeased. I don’t blame him, but this process wasn’t exactly easy on me either. We got out of our cars and started to look around. After finishing our walk through I pulled him aside and asked what he thought. To my surprise he wanted to buy it now and whipped out his check book giving me his nonrefundable deposit. I only had to show the property once, thankfully. Because I made sure the numbers worked and had great pictures and video, it really helped me package the deal together and market it efficiently.
One of the biggest challenges besides the tenant in this scenario was the lease agreement. The seller had been in a frantic mad dash trying to take care of a million other things up until the day of closing while I handled the property. One of the main issues that came up was the lack of a valid lease agreement. In Texas, when you sell a property, the lease conveys with the property and the new owner becomes the new land lord and the title company needed this information. However, in this case the copy of the lease the seller had originally turned in was Xeroxed in such a way that the initials at the bottom of each page were cut off. In other words, without the initials the contract was invalid. I had to continue to remind the seller up until the day of closing to find the original and get it back to the title company ASAP.
You have it under contract, you have a buyer lined up and yet you are STILL not finished. At this point you effectively become the transaction engineer and do everything within your power to make sure this deal makes it across the finish line in, or in this case closing table. In this case, making sure the title company gets a valid lease agreement.
The seller also had Power of Attorney in this case, and that is something I had not yet experienced in the field. It turns out it is very simple to fill out the contracts when someone has PoA here in Texas. That brings me to another point; you don’t have to be an absolute expert on everything to do a successful deal. LEVERAGE the expertise of those around you and build your power team! I simply called up my title company and asked them what to do. Turns out, very simple, the format they like to see is (Owner of the property) signed by (person with PoA) – Attorney in fact.
Always aim to create a win-win situation where the seller benefits and gets the amount of money they need and the end investor gets a great deal. Don’t be afraid to get your hands dirty and try some new things you have not yet experienced.
Special thanks to Ned for allowing me the honor and privilege of guest post on his blog. Thanks for reading and if you have any questions feel free to leave them in the comments below and I will do my best to address them.
This Guest Post was by Chris Feltus. I hope you enjoyed it. I met Chris on the Bigger Pockets forum. His website is Feltus Family Homes.
Happy Investing – Ned