Kristine has given you some great advice, and it sounds like you’ve got the concept down.
Here’s a BIG thing that totally changed my outlook on my business concept. Your step one should be “Find a distressed SELLER”, not property. I found many, many distressed properties my first month. I also found that the sellers might or might not be motivated. Find the distressed seller, and they’re inherently be motivated.
Hard to realize this until you’ve dealt with the perfect property, and a totally unwilling seller. I wasted a lot of time chasing down everything under the sun on a property, all to find the seller doesn’t care. Luckily, I encountered that early on, and realized to not do it again. As well, you can start looking at “pretty houses”, that are much more desirable to the masses, than a “junker” would be.
I am a new investor and have read a few books on flipping. I think a have an o.k. grasp on it but I dont understand about writting up a contract. Here is how I see it.
Posted by Kristine-CA on November 13, 2002 at 12:19:04:
Regarding the contract: I think it is a really good idea for beginners to use whatever contract is standard for their area–probably the standard Realtor board contract for your state. Alternately, if you’ve never seen a purchase contract for your state, you might want to talk to an agent friend or visit a re lawyer.
I made a few mistakes at the very beginning by using forms I got off the internet. Nothing major, but a lot of hassles. If you are thinking of assigning your contracts or options, I strongly suggest you set yourself up with the right documents that everyone knows in your area.
I enjoy your posts and, from personal experience, agree that it’s well worth the time and money to have a competent attorney, local to your intended transaction, review any paperwork you plan to use.
In your post, you mentioned that you didn’t like the use of options. If you get a chance, I’d like to hear your reasoning. Do you think it’s “cleaner” to just use a purchase contract with some type of contingency clause? If yes, what contingency do you use to protect yourself from being obligated to the purchase agreement in the event you cannot flip/wholesale/sell it?
Posted by Kristine-CA on November 14, 2002 at 20:48:48:
I don’t think I said I don’t like options. If I did, I misspoke. What I meant was that I don’t follow my attorney’s instructions to use options for everything I am planning to flip. Options are “safer.” You are only risking the consideration. Purchase contracts, aside from deposit money, are commitments to perform. One can get sued if one doesn’t perform.
I work with lots of sellers who don’t want to hear about an option. They don’t want to keep my consideration money. To them, an option is as good as an agent listing. There is a no guarantee, no contract. So, I give them a contract.
I don’t have a contingency clause and I’m walking around with the stress and bruises to show for it. I have a lot of open escrows right now. And there are a couple I don’t think I will be able to close. One of them has had three buyers fall out of escrow. But I’m not worried about being sued, I’m not worried about the earnest money. I’m worried for the seller’s. It’s not as if I took any of these off the market. But I did build up hope in them that I would be able to close within a certain period of time and get them cash for something they had given up on.
But life goes on. There are some really good deals going too. And I love working with sellers. Just when I think it’s time to call it a day with a certain property, something happens to make me think it will work out ok.
Hope that answered your questions. Sincerely, Kristine
RE attorneys are worth the $$ - Posted by Kristine-CA
Posted by Kristine-CA on November 13, 2002 at 13:11:20:
I lucked out on my first flip. The seller’s husband was an attorney and she was the executor of an estate. They told me to submit my offer on a standard Realtor form. I didn’t even know what they meant. It’s gotten so much easier in such a short time. Now paperwork is the last thing I think of. Now I wonder where the next deal is coming from and the best way to get the phone ringing.
Documents are what an RE attorney is for. I hate to be a pill about this. I know all of us beginner’s want to do everything with no money. Mostly because we have no money. A good RE attorney that provides copies of contracts and information and answers questions is a lot cheaper than most of the courses sold on this board. And will know the particulars of your area. I don’t go to mine with specific deals. I go to mine with questions about docs and procedures. I do all the paper work myself. (Mine also has good coffee and free candy. And I use their copy machine when I am there.)
My suggestion is find an attorney that only does RE. General attorneys can’t be as helpful because they have to look up everything that isn’t a standard purchase if RE isn’t what they do all day. Now, my attorney doesn’t love every transaction that I do. But that’s not what he’s for. He tells me the safest way to do everything and the risks of not doing it that way. He prefers options for everything. I don’t. He prefers long, comprehensive contracts. I don’t . But he’s an attorney, it’s his job to tell me what makes sense within the law.
If you are planning to flip by assigning, you need a purchase contract and an assignment contract. If you are planning a simul or double close, you need two purchase contracts: one where you are the buyer and one where you are the seller. Purchase contracts are easily obtainable from an agent or possibly your Realtor board. I write my own assignment contracts, but you can go to the recorder’s office in your county and look at documents that are used in your area.
I don’t like to contradict the spirit of doing flips by suggesting visiting an attorney. But a good attorney can answer these questions and get you set up with correct docs in a much shorter time than the internet. And, like I said, it’s cheaper than many an REI course.