Tal Freibergs That's a good question. I really only work with the same 3-5 buyers so I don't have recent experience to give you advice on. However, most experienced investors know what wholesaling is and you can just tell them you have the property locked up and you're flipping the contract. When you say "let them figure out the specifics once they receive the PA..." what do you mean? What are the specifics you're talking about?
How Wholesaling Vacant Land Works
I have heard a few of you mention wholesaling properties. I have come across a number of people who were willing to sell, however, not at a price I was comfortable buying. I would be very interested in potentially wholesaling deals for these sellers but I am not really sure how to go about it. Could someone provide an example of how a typical deal wholesaling vacant land would work?
Hi @kayarbe - funny you should ask this on the same day I just published an update to this GIANT blog post all about how wholesaling works. Check it out!
We've actually got a very in-depth interview coming up later this month with an experienced house wholesaler (look for it on the blog on September 29) and you can hear from a couple others who have done well with assigning contracts in the land business. You can find those here:
Awesome! Thank you so much Seth Williams! I look forward to reading it!
Thank you @kayarbe and Seth Williams. This thread was perfectly timed for me. Literally, over the past two days I've been talking with a prospective seller that is really tied to an asking price that I definitely would not commit to closing on as a traditional cash sale. It's a new county/market for me, and the comps I'm finding have a fairly wide variance in terms of price per acre. Up to this point with my land flipping, this would have been the end of the road on this particular deal, as there is a fairly wide gap between my number and the seller's, but I was already thinking about responding to the seller by proposing that we approach this with an option agreement. After seeing this thread and reading that blog post, I think there may be some advantages to approaching this with an assignable purchase and sale agreement (wholesaling agreement) instead, and after sleeping on it, I'm probably going to respond on that basis, tomorrow.
David Ludwig - when you're willing to consider the assignment or option route, a lot of new possibilities can enter the picture.
Granted... many of those possibilities will lead nowhere in the end (and if they do fizzle out, it will mostly just result in your wasted time rather than wasted money), but some of them can pay off big time.
Regarding your mention of the option agreement (which, for the purposes we're discussing here, is just an alternative to an assignment), it might be worth looking into that type of agreement too, depending on what your intent is.
We were discussing this a bit in this thread, if you want to check it out: https://retipster.com/forum/topic/280/option-agreement-template-s-needed/5
Thanks, Seth Williams. I wonder what factors you would consider in choosing between an assignable purchase and sale agreement vs. an option agreement for a particular deal?
For me, having not actually done a deal yet with either type, I'm thinking that, for one, if I'm realistically anticipating the spread between my cost for the property and what I flip it for might be fairly wide, I may be better off doing a double close, rather than assigning my contract, to avoid the potential of my end buyer freaking out when they see what I'm making on the deal. Having said that, I guess I could still do a double close whether I have an option or an assignable contract, I just wouldn't assign the contract in that case, I suppose.
On the other hand, with the particular lead I'm pursuing currently, I'm thinking the spread between what the seller wants and what I could potentially get is relatively narrow (maybe 10% to 15% - few thousand bucks), and the seller kind of strikes me as the type of guy that, if I introduced the concept of an option payment into the agreement, he might want to negotiate that payment to something significantly higher than some nominal $10, so in this case I'm thinking an assignable contract with no upfront option payment probably makes more sense.
Does this way of looking at it make sense to you, or are there other factors one should look at in choosing between including option vs. assignment language in their agreement for a particular deal?
Wondering if you could expand on the direction you decided on from late 2020. I have a current situation with a prospective waterfront lot down in Florida that I don't want to tie up funds on but was thinking I'd look into doing an option contract. The range of comps make me very unsure as to what I could sell the lot for so I'm not in a position where I feel comfortable buying but was thinking of doing either an assignment or option contract and double close.
Jason Dykstra, sure. I'm currently working on doing my third property as a double-closing -- purchasing and then reselling to an already-identified buyer either on the same day or within a week or so from the date that I closed on my purchase. I had a fourth one under contract previously, intending to do the same, but didn't find a buyer so I canceled my purchase agreement with the seller.
So far, I did all of those on the purchase side with a pretty straight forward, one-page purchase and sale agreement that identifies my LLC "and/or Assignee" as the Buyer; generally has a latest closing date that's a few months out into the future (to account for any unknowns with clearing title on the property, finding a buyer, etc.); and includes standard language that Buyer retains the right to cancel the sale agreement any time for any reason.
I have not, so far, done a separate Option Agreement with the Seller; although, I have thought about doing so. It's been my general impression that a purchase and sale agreement structured with the elements referenced above essentially serves the same purpose for me, in that it allows me ample time to find a buyer; it should allow me to assign the contract if I wanted to (although, I haven't actually done an assignment yet, having double-closed each of them); and it allows me to cancel the contract if I choose to (which I did one time, so far).
On the resale side, I've used a very similarly structured PSA, but with a $500 earnest money deposit added; the Buyer's right to cancel any time for any reason removed; and perhaps most importantly, a Contingency clause added, stating that, "This contract is contingent upon Seller successfully purchasing the property, which Buyer and Seller agree may not have occurred by the time this contract has been entered into." In other words, I can't sell the property to my end buyer if I ultimately am not able to acquire the property from my original seller; and my end buyer can't hold me accountable for anything other than returning their earnest money deposit if it comes to that.