is this a scam or what? - Posted by lea

Posted by JohnBoy on March 12, 2002 at 15:56:43:

The two most common contingencies I use are inspection and earnest money clauses.

This agreement is subject to the final inspection and approval of the property by the buyer in writing on or before _________.

The buyer’s earnest money shall be held in escrow by agent of buyer’s choice. Upon default of this agreement, seller shall retain earnest money as his sole remedy without further recourse between the parties.

Since most wholesale cash offers usually pertain to property in need of a lot of repair, the property is going to need to be further inspected to determine a more accurate repair cost. This allows me to have a contingency that allows me to back out of the contract for any reason by not approving of my final inspection.

If for any other reason something should become a problem where I couldn’t close and my inspection clause didn’t hold up, which it always should, but in a worse case scenario the most I can lose is any earnest money I put up since my liability is limited to the amount of earnest money as the seller’s sole remedy without any further recourse against me.

So if you put up $10 as earnest money then the most you could lose is the $10!

I never put up more than a $100 as earnest money. I can live with that if I ended up losing it for some reason.

is this a scam or what? - Posted by lea

Posted by lea on March 03, 2002 at 19:59:33:

i see advertisements all the time, will pay all cash and close in 10 or 30 days or some thing like that, i see this all over my area in the bronx NY. how can i compete w/that? i cant pay exactly what the owner wants and i cant close in 10 or 30 days either. i have always thought that these people are wealthy investors, or contractors,
but i have also thought just mayb they were sheets students,could they be??? can anyone tell me why or how these people can do this? or is it some kind of false advertising or scam? thanks

Re: is this a scam or what? - Posted by JohnBoy

Posted by JohnBoy on March 04, 2002 at 02:58:43:

How can you compete with those other cash buyers? Easy! The first thing you need to understand is that these investors aren’t paying the sellers want they want either! If they pay cash then it’s at a STEEP discounted price! They say they will pay CASH and close in 10 or 30 days, but they don’t say they will pay full price for the property! Even those that have NO cash can do this! YOU can do this, too! You just need the knowledge in how to do it!

Let’s use an example.

A guy named Charlie decides he wants to become an investor. Only he has no money, no credit and doesn’t have a very good paying job. He hears about people buying real estate and making pretty good money at it and figures there must be something to this. He’s seen the commercials a thousand times on TV selling those real estate courses advertising no money down. He’s seen the signs around that say, “We Buy Houses For CASH!” and figures there must be some way these investors are getting all this money to buy with cash. So he decides to look into this real estate stuff and learn about all these no money down techniques so he can get in on this stuff to! Well after doing some research, Charlie learns that just because they offer CASH doesn’t mean it has to be their cash! It can be anyone else’s cash also! All he needs to do is know where he can get the cash from. Charlie educates himself to learn how to do this.

Next Charlie decides to put out some signs of his own. His signs says pretty much the same thing as those other signs.


Charlie doesn’t have any cash of his own so he’ll be looking for properties that he can get under contract and flip to other investors that do have the cash or he’ll use a hard money lender to fund any good deals he can get! In Charlie’s research he learned that a hard money lender makes loans solely based on the asset. They don’t care about the buyer’s credit, income or even if they have a job! The real estate is the hard money lender’s security if Charlie didn’t pay them back. Of course Charlie knows that in order to use a hard money lender or in order to just flip the deal to another investor that has cash to buy with, the numbers are going to have to make sense to do the deal. Charlie knows a hard money will only loan up to 65% of the property’s value and that he’ll have to pay the hard money lender points on the loan and a high interest rate on top of it. This is why hard money lenders don’t care about the buyers credit, because they will have good security against the property. If Charlie doesn’t pay the hard money lender will still get their money back plus some because they’ll have 35% equity in the property. Since they only loaned 65% of the value they can still discount the property by 20% to get a fast sale and still come out with 15% of the property’s value as profit after getting what they loaned back! Charlie also knows that if he just plans to flip the property to someone else that does have cash to buy with, that the investor he sells to is going to need at least a 20k profit before they will consider doing the deal. So now that Charlie knows he can borrow from a hard money lender or just flip the property to another investor, all he needs to do now is find the right properties to buy!

Charlie gets a call on his sign from a seller. It’s a property in need of a lot of repair. The seller says he called because he seen his sign that says he pays CASH! Charlie says, that’s correct! I can pay CASH if that’s what your looking for! The only thing is that Charlie can’t pay full price if the seller wants all CASH! Charlie goes and looks at the property. He determines what the property would be worth if it was all fixed up. Then Charlie determines what it will cost to fix, what it will cost to list with a realtor to resell after it’s fixed, what the investor will want for his profit, what his holding costs will be for up to six months while he fixes the property and gets it resold for retail, and what Charlie will want for his profit. After Charlie figures out all the numbers he now knows what the MOST he can pay for the property will be. So after adding up all the cost involved and figuring in the investor’s and his profit, he subtracts all that from what the property would be worth after it’s been fixed up and makes his offer for several thousand below that as an all CASH offer!. That way he has a little room to come up on a counter offer and hopefully get the property at the CASH price he needs to pay! The seller excepts his offer! So Charlie writes up the contract and includes his contingency clause that would allow him to back out of the contract in case he couldn’t find someone to flip the deal to in time before his contract with the seller expires! Now that he has it under contract all he needs to do now is find an investor with cash to buy it from before he has to close on the sale with the seller! Charlie runs an add in the paper that says something like:


Charlie gets a few calls from some other investors that are interested. They agree on a price that ends up being about $3k above what Charlie’s contracted price with the seller is! So Charlie assigns his contract he has with the seller over to his buyer, the investor, for a fast $3k! The investor shows up at the closing and he closes on the sale buying the property with his cash! Charlie makes a fast $3k off the deal!

How much did this all cost Charlie out of his pocket? The cost of running the ad! That’s it!

What if Charlie wasn’t able to find a buyer in time? He uses his escape clause in his contract to back out of the deal!

So was Charlie offering some kind of a scam by advertising he’ll pay CASH??? NO, he wasn’t. He was offering all CASH, but he never said anything about it being HIS cash! Only that he’ll pay all cash! When the investor Charlie flipped his contract to shows up at the closing and pays the seller their CASH at closing, did the seller get all CASH??? Of course he did! So there was no way that Charlie was trying to scam anyone. He intended for the seller to get CASH and that’s exactly what the seller got! So there was no scam involved here!

So, do YOU need to have CASH of your own to go out and offer sellers all CASH to buy their property??? No! You just need to know HOW to go about getting the seller the cash they need! This is where having the KNOWLEDGE can make you money in this game! You don’t NEED to have any money, or any credit, or even a JOB in order to make money in this. The ONLY thing you need is KNOWLEDGE! Then just get out there and take ACTION and find the deals by putting them together by using the KNOWLEDGE you have by structuring the deals to where you can make a profit from it!

Remember, anyone can offer CASH whether they have the cash themselves or not! You just need to offer LOW for getting CASH and then flip the deal to someone else that has the cash to buy with! If you get a deal that will allow enough profit for another investor to make on the deal you won’t have any problem with selling to someone in a short period of time! Everyone that invests in real estate that has CASH will jump all over a deal if it allows enough room to make a decent profit to justify their investment! These are the types of deals other investors with CASH are always looking for!

When ever a seller wants CASH then the only way you can offer them CASH is if they will sell to you for YOUR PRICE!

If they won’t sell for YOUR price then the only other way you can pay near their price is if they agree to sell to you on YOUR TERMS!

MY price and you can get CASH! Your price then MY TERMS! If neither works for the seller then aren’t MOTIVATED! NEXT!!!

Re: is this a scam or what? - Posted by JoeS

Posted by JoeS on March 03, 2002 at 20:13:04:

You can’t compete with that! Don’t think of ways that your competition hurts you, think of ways that it will help. Where does McDonalds like to build…out in the BOONIES? No, next door or across the street from the Wendys or B. King!

Your job as an investor is to locate motivated sellers, not worry about who else in town in also in business. Hope this helps.

Re: is this a scam or what? - Posted by Randy_OH

Posted by Randy_OH on March 12, 2002 at 14:15:35:

Great post, but I have a question. You are talking about Charlie with no cash making a cash offer and then finding an investor with cash. You said Charlie would use a contingency clause in case he cannot find a cash investor in time. Could you give an example of such a clause? Thank you for your contributions to this board. I am learning a lot from you.