The split is the easy part of choosing between two JV offers on a first wholesale lead

Here is a situation a newer wholesaler runs into constantly, and the confusing part is smaller than the split. Take a 1960s 3/2 in a working class suburb, ARV somewhere around 215k based on four sales inside half a mile, repairs quoted at 45k by a contractor who walked it. Seller is a landlord who is done with it and has verbally agreed to 128k. Nothing signed yet, which is the part that matters. The lead goes in front of two wholesalers from the same meetup. The first wants 50/50 and says he will put the property under contract in his entity, handle the seller from here, run it through his title company and bring his own buyer. The second offers 70/30 the newer wholesaler's way, and on that deal the newer wholesaler goes and gets the buyer while the partner looks over the paperwork and answers the phone when things go sideways. So the 50/50 brings a much higher chance of a check and the 70/30 brings a bigger share of something the newer wholesaler is not sure they can produce. A buyer list of nine names, none of whom have ever bought anything from them. The real uncertainty is narrower than the split. If partner one signs the contract in his entity, what is the lead source holding? Nothing signed with the seller, nothing to point to if the partner decides three weeks from now that the deal is his. What document is supposed to protect the lead source there, and what should it say? Which one gets the call back this week, before the seller changes his mind?

aaron_fitz10 PU1APRO 13

Answer

devon_pierce SS4APRO 15

The nine names is your answer on the 70/30. Even a list of 140 buyers built over six months of work is a thin thing to bet a live contract on when the close has to be cash at 45k of repairs, and nine names is a fraction of that. On what you hold: ask partner one for the JV agreement before the seller signs anything. It should name the property, name both entities, state the split as a number, and say who pays if earnest money burns. Ask him directly whether your name appears anywhere on the purchase contract or the assignment. If the answer is no, the JV agreement is the only thing you have, so read it slowly. The other question to ask is what he does if his buyer comes in at 140 instead of 150. Does the fee shrink and you both absorb it evenly, or does his cost come off the top first.

devon_pierce SS4APRO 15

3 replies

wendy_park48 CU1BPRO 17

A few things to look for in these, since the paperwork is where the arrangement is actually decided. Who has authority to amend or terminate the purchase contract. If it is his entity on the contract and the JV agreement is silent, he can extend or cancel it, or reduce the price, without you. You want a line saying material amendments need written consent from both parties. How the fee actually moves. Two ways: the closing statement shows both parties receiving their share, or the partner receives the whole assignment fee and pays you after. The second one means you are an unsecured creditor of a guy you met at a meetup. Whether a settlement agent will disburse to a non-contract party varies by state and by the individual title company, so ask his closer directly rather than asking him. Also ask what he thinks your role is on paper. In some states, doing the seller-facing negotiation on a deal you have no equitable interest in raises a licensing question, and the rules differ state to state. That is a question for an attorney in your state, and it is worth the hour. Non-circumvention language matters too. Something covering this seller and this property for a set period if the current contract dies.

wendy_park48 CU1BPRO 17

diane_kowalskiServicePRO

Seventy percent of a deal that doesn't close is zero, and fifty percent of a closed one teaches you what the closing looks like.

diane_kowalskiServicePRO

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