Off Market Purchasing
Nate Hedrick and David Bright discuss off-market real estate purchasing.
Summary
Nate Hedrick and David Bright team up to answer a question from the YFP Real Estate Investing Facebook Group about off-market real estate purchasing. Dan from the YFP Real Estate Investing Podcast group asks Nate and David to explain the process from A to Z of obtaining an off-market property and the team members needed to close the deal. Dan also asks whether an off-market purchase can be done with a mortgage or must be cash-only and if it is acceptable to have a contractor or inspector walk through before closing.
Nate and David define off-market purchasing as buying real estate that has not been advertised publicly for sale. Many investors will find such properties through wholesalers, direct mail, other real estate investors, meet-up groups, Facebook groups, and even Craigslist.
There are a number of team members worth having for an off-market purchase. Having an attorney or real estate agent on your team can help the process go more smoothly. Investors may also consider a great title company. Investors can ask their local title company if they process “for sale by owner” properties and if they have a set of forms that they prefer to use. Another team member to consider would be a third-party transaction coordinator.
For closing, due to the nature of off-market purchases and how quickly they tend to close, having an inspector or contractor walkthrough might not be possible. Due to the speed of these deals, most are all-cash however, a mortgage is not out of the question.
Mentioned on the Show
- Join the YFP Real Estate Investing Facebook Group
- BiggerPockets
- YFP Real Estate Investing 13: The Power of Partnerships
- National Real Estate Investors Association: Find a REIA
- YFP Real Estate Investing 08: Ten Terms for Today’s Market
- YFP Real Estate Investing
Episode Transcript
Nate Hedrick: Hey, David, how’s it going?
David Bright: Hey. Good, thanks. How about you?
Nate Hedrick: Good, except for the roof drama I mentioned to you before we hit record. It was raining in my tenant’s kitchen this morning. But other than that, I’m doing fantastic.
David Bright: Yeah, that doesn’t sound like a good way to wake up in the morning and get that news.
Nate Hedrick: No. The story is that I dropped off the girls at daycare and had a couple of frantic texts from my tenant. And he said, “Hey, this is a video of our kitchen.” And there was a big leak, and unfortunately, when we bought the property, we knew that the roof was going to need to be replaced or repaired eventually. It’s an old roof, it’s a three-layer roof, which if you know anything about roofs, that’s bad. More layers is bad. And so we knew we were going to have to replace it eventually. And I think the day has come. So I am getting some quotes on roof replacement now, which is fun. But it’s all about taking care of them, making sure that they’re in a safe spot to live and that we’re not damaging the property. So it’s just got to be done.
David Bright: Well, and I think that there’s something there about that approach of like, yeah, we knew it was coming. I know you had told me before this was something you were saving up for, you were kind of setting aside some cash flow, knowing that this expense was coming, and so when it came, it’s not like crisis and you’re ready to declare bankruptcy and the world is coming to an end or anything like that. It’s like no, we call a few contractors, we get some bids, and then we replace a roof.
Nate Hedrick: Yeah, the only panic moment, if there was one, was OK, I need to figure out if this is a plumbing problem or a roof problem because I’ve got to call the right contractor, right? I don’t want to call my plumber over for a roof problem or vice versa. So it was a couple of targeted questions to my tenant, and he did some investigation work for me, thank goodness, and was like, nope, it’s not a plumbing thing. Like it’s raining, and then the rain is coming in. So this is a roof thing. So that’s what we had to get sorted. But again, like you said, we planned for it, we had been setting aside capex every single month, so like we knew this was coming. I don’t know what the quote’s going to be, if we’re going to have enough set aside yet, but you know, if not, it’ll just be — it’s part of the game, so we’ll make it work.
David Bright: Yep.
Nate Hedrick: But yeah, so speaking of fun things, what’s been going on with you? I think you had a couple of refinances this past week? That’s much more fun than a roof problem, right?
David Bright: So much more fun, yes. No, one of the things going on the YFP Real Estate Investing Facebook group, which again, if you’re not on that yet, give that a look. There’s been a lot of fun conversation going on there on all kinds of different topics. One was — and I know we’ve kind of mentioned this in passing here and there, but how do you leverage the equity that’s in a property? And one way is through a cash-out refi. So we’re doing a couple refinances that are set to close here in the next week or two. And even just locking into the low interest rates right now, I mean, it’s just something to think about. If you’re planning on holding a property for awhile and if that math makes sense to do a refi based on whenever the mortgage was that you had previously, kind of same kind of thing as any house you would live in as the owner occupant, same opportunity may be there as a house that you have as a rental. So just something to think about.
Nate Hedrick: Definitely worth thinking about. I’ve been thinking about that for one of my properties recently. So good tip for those. And actually, speaking of the YFP Real Estate Investing Facebook group, we had really — we’ve had some great conversations coming in, as you mentioned. And one really great question that came up this week from Dan out my way, he’s actually a pharmacist here in Cleveland — so big shout out to Dan — and we had a great question coming in from him and realized that it would be just an awesome, awesome way to kind of kick off an episode because the question just has a lot of layers to it. So we thought we’d use that as inspiration. I again encourage you guys, if you’ve not had a chance to check out the YFP Real Estate Investing Facebook page to go there, check that out, start a conversation, ask a question. Again, we might feature it on the show just like this. So let me kick it over to you, David. Maybe you can give us that question from Dan.
David Bright: So big thanks to Dan for the idea. He posted this as a suggestion for a podcast topic, which we talked shortly after that, we both thought it was a great idea because it gets in the mechanics of buying a property off-market, which when there are very few deals on the MLS right now in summer of 2021, more and more people are looking off-market. So Dan from the YFP Real Estate Investing Facebook group sent in this awesome question for us to dig into. And so here is his question: He starts off, “Hey guys, great job with the success of your podcast up to this point. This is Dan, pharmacist from the Cleveland area, with a question, hoping you can answer. As we all know, with such limited inventory of homes, it is very competitive for buyers to close on a lucrative deal. It’s been recommended that finding deals off market can still be a viable option. Current examples for finding these off-market deals include either mailing or calling owners of these properties who may be motivated to sell their home, whether the property be vacant, in less than ideal condition, or other telling factors. However, many of the widely-known books and podcasts have yet to explain in detail how to complete a deal like this. For example, if John Doe on 123 Main St. agrees to sell his home for $50,000 and has an after-repair value or ARV of $150,000, what is the proper way to close on this deal? Can you explain which professionals one may need on their team to assure that this deal is handled appropriately from start to finish? Thanks.”
Nate Hedrick: Awesome question, Dan. And awesome plug. I appreciate that you guys are enjoying the podcast. So really, again, awesome question and a great topic because one of the things he said in there that I think is so intriguing is, you know, we talk a lot about off-market deals, but nobody ever talks through the details. I feel like it’s very difficult, even from like the big names like Bigger Pockets and some of the other books that I’ve read, you don’t get a lot of the details. They just say, “Yeah, acquire an off-market deal, and then you’ve got a great rental.” But we don’t talk about like what are the actual steps that you go through to get to that? You know, the interesting thing too is that as an agent, most of the deals that I deal with on a frequent basis are going to be on-market properties. But again, as an investor, I’m constantly looking at the off-market opportunities too. So it’s something that I get to dabble in with my own personal stuff but don’t get to see much from a professional side. But I think we’ve got a couple of things we can talk through, you know, that I think will start to walk through that process and hopefully shine some more light on the details that go through with how to actually buy that property and close on that deal. And I guess a bit of disclosure and disclaimer here: We’re going to talk through a couple of things. This may be very state-specific, right? So I’m a real estate agent here in Cleveland, Ohio. I’m going to answer this as best I can, as generally as I can for most states, but keep in mind, this might not be applicable in your particular area. So Dan, me and you in Cleveland, we can connect if we need to and I’ve got the right answers for you here. But if you’re listening somewhere else in the country, it might be a slightly different process. Hopefully not too different from what we’re going to talk about, but it could be. Local rules and regulations might vary, so keep that in mind.
David Bright: Yeah, and along the way, we’ll try to give some suggestions on how to figure out those local differences, so I think having kind of the big picture from this conversation will hopefully help and then plugging into those local resources to kind of get that finesse right on making sure that this works in your local market because we’ve seen differences even down to like county level and different townships, how they record things, and so that detail is important. But Nate, let’s start with some definitions. With your realtor hat on, what’s the difference between an on-market and an off-market property?
Nate Hedrick: Yeah. So on-market is really just any deal that is officially listed. And it doesn’t have to be in the MLS, it doesn’t have to be — it could be on Zillow, it could be on For Sale by Owner. But basically, a property that is available or it’s made known that it’s available to the public in some way. There’s some nuance here, right? Like you could argue that Craigslist deal or that a FSBO with only a sign in the yard is sort of pseudo off-market, but technically if we’re talking about true on-market v. off-market, an on-market property is one that is being sold as a listed property. And an off-market deal is one that you find that was not listed in the public, if that makes sense. So knowing that, David, I’ll float it back to you. Where do you find an off-market deal?
David Bright: Yeah, well I think a great example would be going back to Episode 13 and listening to Kamryn and Montrell talk about wholesaling because that’s one strategy is that there are people out there where they find their niche in real estate by just finding deals. And they go out and do direct mail and they knock on doors and leave flyers or whatever they need to in order to find off-market deals and then kind of put a bow on those and like hand it to you, right? They make this process very easy. So wholesalers can be one way to find those off-market deals. If you’re going to do some of that legwork, then yeah, the same kind of thing. So there are people that will be driving down the road and see a house that’s not well taken care of and they’ll kind of jot down the address, and they may send a letter, just write a handwritten note, put it in the mail, send it to that address and say, “If you’re ever considering selling, please let me know.” So some people will do that either on like the very small scale of just finding a small handful of houses, writing a small batch of letters. Other people may mail an entire zip code of hundreds or thousands of houses with postcards and go more of that broad approach to direct mail. So direct mail is one way to do that. One way is oftentimes just talking with people. Like as you share that this is something that you do, oftentimes, people will reply back like, “Yeah, I know someone that tried that rental property thing and they hate it. I’ll bet they’d sell that thing if you ever wanted to buy it.” And sometimes just natural conversation generates these like someone is thinking about selling kind of but they haven’t gotten a realtor, they haven’t marketed it any way, those kind of things. So just talking with people. A third would be local real estate investor meetups. There’s been times where I’ve known different investors that are like, “Why don’t you like that property that you have? I’d buy that from you in a heartbeat.” And then that turns into a transaction right there off-market. And then like you said, there’s some other ways that kind of get in the gray area of whether it’s on- or off-market, whether that’s Facebook or Craigslist or those kinds of things, but a lot of those are just kind of natural conversations, which is kind of how Dan set up the question.
Nate Hedrick: And don’t forget, there’s also the classic example of like a family member that wants to sell their property to you, right? So somebody that maybe it’s a mom and dad that own a property in a college town and they want to sell it to their son because now he’s moving there or staying there. That’s a really common off-market deal, even though we don’t really think of it that way. So those are all examples. I think that’s great. Appreciate that. You know, once you’ve found that deal, right, that’s when you’ve got that verbal agreement, right? So you’re going to be speaking with the potential owner, you’re going to be working through some of those details, you’re going to come to some sort of verbal agreement or at least say, “Look, I’d love to give you an offer on this property. I think we can come to something, right?” And that’s when it comes a little bit more serious, right? Deal acquisition is all fun and games because you get to send out letters and you can make phone calls and finding those things is great, but then it comes to OK, now it’s time to actually buy this. And that’s when you want to make sure you’re not doing anything wrong. And so I think there are a lot of ways, you know, David, you and I talked about some of the ways that we’ve handled our own off-market deals and there are a lot of different ways to make sure that you’re doing it right. And again, a lot of this can depend on what your local market holds. But I think one of the best ways to kind of get rolling is to reach out to somebody in that local market and see what they’re doing and not necessarily taking that and just running with it but reaching out to like, you know, either someone in the YFP REI Facebook group, reaching out to someone in your real estate investor association, talking with other investors that you might know through a Facebook group that is more local. There are a number of ways to at least start that conversation and, again, I wouldn’t say the first person you talk to, you should take everything they do and do it exactly the same way. You want to do your due diligence. But that can be a great way to get started because they’re going to know the nuances, they’re hopefully already doing these deals in a way that you can replicate and run with. From there, you definitely want to make sure that you’ve got an attorney. There are many states where an attorney is actually required during a transaction. I would argue that even if it’s not required, you probably want to have one at least reviewing your forms and being involved in that process. And then you might even want to consider hiring a real estate agent. I know that sounds kind of counterintuitive because the whole point of this is to have it off-market and not have a real estate agent involved, right? But there are a lot of agents that will happily look over a document for you for a reduced fee. They might even do the whole transaction coordination for a reduced fee to help you make sure that that process is being done appropriately. So there are a number of ways to kind of get professionals involved without it being this high-cost, high-profile project. But I think it starts with those conversations with somebody in the local market that’s already doing it.
David Bright: Yeah, and oftentimes, those local resources will point you towards some sort of area-specific purchase agreement. And that contract language that’s — again, for that county, for that city, however that’s broken down, that region — that contract language that’s common in that area can help you to stay on track also. And so as you get to that point where you’re negotiating this through, your neighbor wants to sell their rental property because they don’t want to do it anymore and you talk with them, reducing that to writing but reducing it to writing on the proper form. And so hopefully one of those sources, whether that’s another investor, an attorney, an agent, can help get you started with those forms because I know Nate, you were telling me a story about just trying to Google for those forms one day. So talk us through that one for a minute.
Nate Hedrick: Yeah, this actually came up — yeah, this came up when I bought my first rental property and I needed to establish the lease. And for me, that was this — again, I had been an agent for years, I knew the buying process inside and out, like I felt more than comfortable with that aspect of purchasing a rental property. But what I had no experience with beyond being a renter myself was rental lease agreements. And so I remember vividly, I was closing on the property soon and I was like, I’m going to figure out this lease so I can start listing this property. So I Googled “Ohio lease form,” I downloaded the first form I found, I started like monkeying with it and changing things in it, and I got like to Page 2 of this nine-page lease, and I said, “What am I doing? Why am just using a random Googled form?” If I was a pharmacist and I Googled, you know, “side effects of drug” and then just pulled the first resource that came up, like I’d be a terrible pharmacist. So I took a really hard step back at that point and said, OK, I need to find the proper forms to use for my state, for my city, and really started to take a step back and make sure that I was doing it the right way because just Googling it and hoping for the best was not a good solution.
David Bright: Yeah, I think there’s times like this where if you’re going to make a potentially several hundred thousand dollar investment in a property, like trying to Google your way out of a few hundred dollars of attorney fees seems like not a smart move at all. So.
Nate Hedrick: Yeah, not the place to cut corners, believe me.
David Bright: Yeah. So taking the time to make sure that you’ve got the right forms, you’re filling them out the right way, you’ve read them thoroughly, you understand all the terms, that you’ve got that figured out can be a really strong first step in that process.
Nate Hedrick: And you can start that, like you said, David, before you even find a property, before you even start looking for an off-market deal, right? You could be looking for these forms, having them in hand, so that you could look really professional too. Say you do show up to an in-person negotiation with somebody who’s thinking about selling their home, you having these forms in hand and saying, “Look, this is the PA agreement that I usually use. If you’d like to review this, I’ll send you an electronic copy afterward, but I wanted you to at least take a look at that,” I mean, it can really set yourself apart and make it seem like you know what you’re doing, even if maybe you don’t have the experience there yet.
David Bright: Yeah, I don’t think that the time to be figuring this out is while you and the person you’re trying to transact the sale with are like reading this like on the hood of a car somewhere trying to fill it out. Like no, no, no.
Nate Hedrick: Exactly.
David Bright: Read this, learn what you’re doing, because there’s a lot of pieces in these purchase agreements that you want to make sure that you get right because I mean, there are things in here that you can get hurt by, right?
Nate Hedrick: Absolutely.
David Bright: Like what are some of the things that you see people do wrong in this?
Nate Hedrick: Remember too, like you are buying a property, right? Even though there’s maybe not as many people involved, this is the same as buying any other property. And so the real risks are manyfold. I mean, you think about things like not having a contractor walk through because ‘Hey, I know this guy, it’ll be fine,’ or ‘He’s a local investor, I’m sure it’s fine, I don’t need to worry about any of this stuff.’ And not having that contractor walk through or not having that home inspection could mean thousands upon thousands of dollars of extra cost to you if there’s a big problem or a big issue that you discover later on down the road. So knowing if that is appropriate to put into your purchase agreement, knowing if that’s part of the negotiation up front, determining all that before you take any steps, I mean, that alone can be a major factor. Other things that scare me and things that I like to look for — and we can talk about this as well — is things like title — like clouds on the title, for example. So if there’s a lien on the property, either a mechanic’s lien or a property tax lien, things that basically you would be slated with if they were not caught by someone. And again, we’ve got strategies for mitigating that, but there are a number of scary things that can occur if you’re not doing your due diligence and checking these ahead of time.
David Bright: Yeah, so I like what you said, that this really then turns into any other kind of standard purchase process. So all the things that we’ve talked about — like I know we talked about several of these contingencies back on Episode 8 about terms that you need to know so if you want an inspection contingency, either for a full home inspector or like you said, a contractor to walk through and just look for the big things, either one could be a way to bring some protection there. Clarifying things like earnest money if there’s going to be a survey on the property where someone checks the boundaries of the property lines and make sure everything’s good there, seller’s disclosure where the seller would disclose anything that they know that might be improper with the property, all those kind of things. I think liens are another thing. So from that, what are ways to protect yourself from liens and how does a title company fit into all that?
Nate Hedrick: Yeah, so one of the things we didn’t mention that is a super important part of your team is getting a good title insurance company and a good title company during the process. So again, in Ohio in most areas, you’re going to need to get a title agency involved through some of this process. Basically, they’re the ones that are looking at the title, which means who owns that property and that parcel. And they are looking for things like liens on a property, they are looking for taxes that have not been paid, they are looking for chain of ownership to make sure that the person selling the property is the person who actually owns the property or has the right to sell that property. That’s actually a huge one. And so getting a title insurance — or title agency involved and consequently, title insurance, helps to protect you during that process. So they are making sure that the chain of ownership follows the appropriate lines and that once you take ownership of that property, there’s not all of a sudden going to be a tax bill that shows up in six months because it turns out Joe who you bought it from hasn’t been paying taxes for six years and just didn’t disclose that, right? And so what that title process does is it looks for those things, it kicks out insurance against those things not being discovered — so if they do miss something during the title search, the insurance policy you buy — and you can optionally not buy this, but I don’t recommend that — that policy actually protects you in case they didn’t catch something that comes up down the road. It’s super, super important. There was actually just a story in one of the Facebook groups that I belong to about BRRRR investing. And there was a gentleman who said, “I’m getting this tax bill three months after I bought this property. Does anyone know what this is or why this is going on?” And everyone’s like, “Call your title agency now. Get this sorted out. That’s the person you go to. That’s your fallback.”
David Bright: Yeah, I think that’s super important. And I know I’ve had that happen to me personally too where something was missed in the process. It happens. It was a super reputable title company. It wasn’t anything anyone did wrong but just like a medication error, you know? Like it’s stuff that happens. It’s unfortunate when it does, but in this case, reputable title company took care of it and made it right. And it was good. So these kind of things do happen and so working with a title company — I did talk with a seller at one point who suggested that in order to process the sale, we could just go down to the county office and I could bring a check and they could sign a deed, and that would be all that we would really need to do. And it’s these kind of things — yeah, Nate, yeah — I mean, it’s these kind of things that can pop up and really create problems. So even when the person on the other side of the transaction seems like they know what they’re doing, there’s definitely some ways you can get hurt in that process by not having that title company. So I know I’m trying to make sure that we’re hitting all the pieces of Dan’s question. One of those is who do you need on your team. And so Nate, I think you’re making a great point that having a good title company and then if you are in a state where an attorney is required for these types of transactions, having an attorney involved as well.
Nate Hedrick: You’re so right. I’ve seen this situation — I’m laughing because I’ve seen people like, ‘Oh yeah, I just did this quit claim deed at the local court, and it’s fine.’ And not all of those problems that come up are malicious, right? It’s not like everybody selling these properties is doing this in a way where they’re trying to pull a fast one on you, right? It may be something they didn’t even know about. For example, let’s say they had — like their mother passed away and they had to take over their property and now they’re selling it off-market to you. They may not know that their mother hired a contractor three months ago to fix the roof — very topical for me today — and they didn’t end up paying that person. And so now there’s a mechanic’s lien on the property, the person selling the property didn’t know, they didn’t disclose it because they had no idea. But it comes out, and now you’re being sued by this contractor because you’re the rightful owner of that property. So it’s those kind of things that even if the person is extraordinarily trustworthy, you still want to follow your due diligence process on this to make sure that you don’t have any mistakes. It’s just — it’s a recipe for disaster.
David Bright: Yeah, and same kind of thing with the inspection. It’s a great point you say that not all of this is malicious. Like say that you’re buying that rental property from your neighbor, they may be a very hands-off landlord that hasn’t been in that property in 10 years. And so they can fill out a seller’s disclosure to the best of their knowledge, they can tell you in true honesty that they believe this is a good property, nothing is wrong with it, all those kind of things, and you could walk in there and find all kinds of scary things once you start poking around that was not malicious at all. So same kind of thing. If we’re talking about team members, that title company and then having someone — and if you just so happen to be a pharmacist that also can qualify as a home inspector, great. But if not, then having someone that is a home inspector or licensed contractor, someone like that that can lay eyes on the property and make sure that there’s nothing that’s really going to come back to bite you, that would be good.
Nate Hedrick: Side note, if you are that person, please come on the show. I would love to talk to a pharmacist/home inspector because that’s an — like I’m a pharmacist/real estate agent, and I want to talk to the person who’s a pharmacist/home inspector. That’s a cool combo. So feel free to reach out.
David Bright: Yeah, and as detail-oriented as pharmacists are, that would be a detail-oriented home inspector I can imagine.
Nate Hedrick: They would be a terrible home inspector. I’d be the agent there for like six hours while they’re trying to inspect the property.
David Bright: Oh man, as a buyer, though, I would love that kind of detail. That’s my inner pharmacist nerd.
Nate Hedrick: Fair.
David Bright: So yeah. OK, so we talked about the purchase agreement and making sure that you’ve understood that thoroughly, that you’ve got the purchase agreement from a reputable source and we talked through what those are and that they’re not just Google. And then the title company, we talked about the inspector. One other piece that comes up in here is you often hear on podcasts that if it’s off-market, it’s a cash deal. So Nate, have you seen off-market transactions — or is that a rule? Or can you bring a loan? And how does all that work?
Nate Hedrick: Yeah, it’s a great point. A lot of the off-market deals that I see that are especially like wholesaler-provided off-market deals, are almost always all cash. And the reason for that is that a lot of times what the wholesalers will do is they’ll go to a person, they’ll say, “David, I can get somebody to buy your house. And I can do it in two weeks.” That way, it’s all quick, it’s all done very, very rapidly and efficiently, there’s no appraisers coming in to appraise the property in terms of determining its value from a bank, there’s no bank telling me, “You can’t have this money,” right? It’s somebody going to them and saying, “Look, I guarantee you I’m going to close in two weeks, and here’s how I’m going to do it.” And truthfully, the only way to do that in that rapid of a fashion is an all-cash transaction. Now, there are some hard money lenders out there, and we can get into that in a second, but we can do hard money lending. That would be able to achieve that, but most banks are not going to be able to achieve anywhere near that sort of expediency. And so that’s the reason you see most of these deals in all cash. Now, when I say all cash, keep in mind this is not like I show up to Alley No. 3 with a suitcase full of $100 bills. Like it’s not truly bringing cash to a deal. This is still done very reputably. It should be processed all through your title company. Again, that’s why you have a title company. You’ll do this either as like a cashier’s check, in Ohio it’s almost 99.9% of the time, it’s required to be a wire transfer. That’s very, very common here in Ohio. And that way, everything is trackable. And you want all of that stuff running through that third party so that you’re not wiring money directly to a seller or vice versa. That should be done through a bonded, insured, licensed third party like a title company to make sure that it’s all being tracked and handled the way that it should be. But beyond that, you certainly can do deals off-market with a loan. The difference is that it usually takes a little bit more time, and you have the usual problems or usually stipulations that come with obtaining a mortgage for a property. So usually, the bank needs to send an appraiser to determine the value of that property. And they won’t loan more than the house is determined to be worth. So you have to factor that in. And again, depending on the type of loan that you’re getting, there may be other caveats. So like an FHA loan, for example, they will send in an appraiser as well as an inspector to do their own inspection. So you might find a property off-market that needs a ton of work but the bank might come in and say, ‘Well, this type of loan isn’t ready for a fixer-upper type house like this, so I can’t give this to you.’ So those are some of the problems that you see and the reason that many people like all-cash deals for off-market transactions is simply because of the ease and that you don’t have that third party getting involved in the process.
David Bright: Yeah. So possible, certainly, but there’s some simplicity with the cash. And I know Nate, on the agent’s side, I’m sure that your — I think one thing that first-time homebuyers don’t understand is all the behind-the-scenes calls and texts and things like that to coordinate all of this stuff behind the scenes to make sure that the mortgage company is talking with the title company, that they’ve got all these appraiser walkthroughs and inspections and all those kind of things set up. So you know, you would be taking that on if you’re trying to do this yourself without that team in place. It can be done, it’s just one kind of additional layer of complexity there.
Nate Hedrick: Yeah, overcommunication. That makes the best real estate agent. So if you want to do this yourself, by all means. Just overcommunicate because I can’t tell you how many times I’ve sent an email and thought, I’m just going to send this just to make sure that the title company knows this one thing that I think they should know from the lender or vice versa, and nobody had any idea. And if I hadn’t sent that email, it would have come up in two more weeks and then the whole deal would have been delayed by another week and a half. Like it’s those kind of things that a good agent catches before it becomes a problem. And again, you absolutely could take that on yourself, it’s just you’ve got to make sure you’re on top of it. Alright, so David, we’ve talked about a lot of stuff. And there’s a lot going on with this process. And I want to try to streamline this and again, really get back to answering Dan’s initial question. And so he gave us the example, like let’s say you found a property, 123 Main St., and the person agrees. They say, “Yes, I will sell you this home for $50,000.” And you know that it’s going to be worth $150,000 when it’s all said and done. So he goes, “What’s the proper way to close on that deal?” So maybe let’s very briefly rapid-fire, like walk us back through what are the steps that you, David, would take to kind of get that from we found a property, the person said $50k, how do I get that to the finish line?
David Bright: OK. With the preface that we always give, this is not legal advice. All this is state-specific.
Nate Hedrick: Exactly.
David Bright: Find those experts. And so that’s kind of that first step, right, is like find that local expert that can walk you through this and make sure that you’ve got this right. But kind of generalities are before I’ve had that handshake moment with John Doe that’s trying to sell that house, I want to make sure that I’ve got all the paperwork in place. So I’m talking with a title company to get their for-sale-by-owner paperwork or I’m talking with an agent or I’m talking with an attorney, someone that can make sure that the paperwork is right. I’ve ready that, I’ve understood that, and I’m comfortable then transacting that sale and filling all that out. That sounds like the first step. So then Nate, what comes next?
Nate Hedrick: So then next, I’d be definitely getting that title agency involved, saying, “Hey, we are under contract on this property. We will be closing — expected close date is two weeks from today. I need you to help with the title search and the entire title process.” And so that title company will basically say, “OK, great. I’ll take it from there. Send us the purchase agreement that you have.” Again, hopefully it’s the one that they’re used to seeing and will kind of take it from there. And so they’ll set you up with what the fees are going to be for actually using that title company. You’ll see all of that. You’ll come up with the cash that’s required to close, they’ll collect the earnest money deposit from you. So the earnest money is something that you, again, can negotiate with the seller to determine how much holding costs or much holding money they’re going to be able to access if you back out of the deal. Again, I don’t recommend giving that to the seller. I recommend giving that to a third party escrow company like a title company. That protects you, again. So I’d be getting all that set up and then I would let title start rolling through and doing that title search.
David Bright: Yeah, from there, I think continuing to make sure that you are following that purchase agreement the whole time. So if you for instance give yourself a five-day window for a contractor walkthrough in lieu of a formal inspection, then call the contractor, arrange the contractor to go through there, like take all those steps that I know some agents may do to help coordinate all that. But if you don’t have an agent, this is your job. Make sure that you get a contractor, get that contractor through there, review the report, disclose by all the deadlines, whether you’re thumbs up or thumbs down or if you have any further negotiation that has to happen there. And so make sure that you’re walking all the steps of that purchase agreement.
Nate Hedrick: Yeah, and then from there, again, like you said, once you’re following that purchase agreement and title company says, “OK, hey, we’re clear to close. We’re going to be closing on Aug. 1,” whatever the date might be, you basically would set up your wire transfer for the amount that they tell you to. One really important thing — again, wire transfers are very common here in Ohio. Some places you can write a check or do a cashier’s check or there’s a number of options. But in Ohio, you do almost all wire transfers. There’s a lot of what’s called wire fraud out there. I’ve seen this countless times in some of the Facebook groups that I belong to where someone will say, “Alright, I’m buying a house for $50,000. I got an email from somebody that looked like my title company. They said, ‘Please wire your $50,000 plus fees to xyz account,’” and it was a fraudulent account. They basically stole all of that $50,000. So you need to verify, triple check if you’re doing a wire transfer. Always call the main number of the title agency that you’re working with and quadruple verify the routing number and the account number that you need to be sending money to. But basically, once you’re getting ready for that closing process, you wire that money about a day in advance and then set up a time to do the actual signing. Now in most cases, it varies by state, but in most cases, you can actually do that signing remotely. You can do that all electronically through like a DotLoop or DocuSign. But in some cases, you will have to show up in person, an attorney may have to be present, depending on your state. But you basically prepare for that closing process. One more important thing I mention here because I feel like this is how it always goes in the movies where you sign your title paperwork, your closing paperwork, and then you get handed the keys and you have the house, make sure that the title is actually transferred before that takes place. In most cases, the way that works is that you’re signing on a Tuesday at noon or whatever and it takes a couple of hours or even a day for that title to officially transfer ownership. And you typically don’t get possession until that title has transferred. So follow your purchase agreement, whatever transfer date is listed in there or whatever process you have to follow in terms of when that possession takes place, make sure you’re following that and not trying to gain access to a property early. That’s super important. David, anything I missed?
David Bright: No, I don’t think you missed anything. I think this is good. And hopefully it’s just that helpful general approach to doing this, which again, finding someone in your local market that you trust that can kind of confirm your process or walk you through that, that can be worth buying someone a cup of coffee or a steak dinner or paying an attorney a little bit of money to make sure that you haven’t missed anything. Because yeah, this is just something you don’t want to do the wrong way. But oftentimes, you can get that local advice and work that process through.
Nate Hedrick: Well, Dan, again really appreciate the question in the Facebook group. I encourage others to do the same. I think this is a great way for us to come up with topics to talk about. And again, if you guys are asking the questions, we want to provide the answers. So if you’ve got something else that you find intriguing or wish somebody would explain in a way that you haven’t heard before, drop us a line, hit us up on the Facebook group, whatever you want to do, we’d love to take those questions and find a way to answer them. So again, appreciate it. And the rest of you, hope to see you on the YFP Real Estate Investing Facebook group in the near future.
David Bright: Thanks so much.
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