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Hey guys! It’s Steph Davis, and I’m here today to share with you some of my thoughts on earnest money and how you can protect yours.
This lesson is an extension of my wholesaler essential series at Mogul, and today I’m all about eliminating for you one of the biggest stumbling blocks so many of us encounter in the wholesaling world.
I’m talking about earnest money.
Since I started in the wholesale business, I like to think I’ve helped some people through their first deals, and in doing so, I’ve learned what to do and what not to do with my earnest dollars. And hey, if I can save you time, money and a few premature crow’s feet, then kudos to me, high fives to you, and drinks all around!
Here we go…
How Do I Protect Myself From Losing Earnest Money?
If you’re about to submit your first offer on REO properties (congrats!), and you’re afraid of losing money. News flash: You’re not alone. The question you have to ask yourself (the question you guys ask me all the time) is… what happens if my end buyer backs out?
Well, if that happens (and trust me, it happens), there is a simple solution, believe it or not.
Whether you’re dealing with a bank-owned property or a private seller, there are 2 rules I want you to learn and live by:
Remember, the larger the deposit, the better.
Having to Asking for Earnest Money Deposits Freaks Me Out
Look, I was nervous as hell the first few times I had to ask for deposits, but remember it’s standard practice (and sellers can smell fear), so don’t hesitate!
After all, they’re bringing tens of thousands of dollars to the table, so what’s another couple Gs?
Does Size Matter?
I get this one…a lot.
Is it possible to put down pocket change on REOs?
I’m happy to say that it is indeed possible to do wholesale deals with private sellers and put down just a few bucks. (Woohoo!)
I’ve been there, and apparently several of you have done that too. I’ve heard of deposits as small as $10, so if you’re just starting and you’re broke, you can make it happen. If you’ve got a deal that can generate big bucks, you’ll find a way. Trust me. You tend to get super resourceful when dollar signs are involved, so trust that you’ll come up with the deposit you need, some way. Do what you gotta do.
With that said, are there times when putting small deposits on REOs will bite you in the butt? Absolutely. Banks have strict stipulations and set deposit amounts, and they only see black and white.
So, if you don’t have the cash in the here and now, consider partnering with someone in your market who you trust (and who trusts you). You have options.
Here’s another. Don’t just go after bank-owned properties; go after private seller deals that won’t require as much up front money.
Gotta Something to Add?
Got any other earnest money tips? Share with us in the comments section below.
Protect yourself from losing your earnest money!
Don’t allow contingencies. Ever.
Always get your earnest money deposit.
Get over being nervous about asking for the deposit. Just do it.
Remember size matters, sometimes.
Steph Davis
started wholesaling in October of 2006. At the time, she had been stuck at a job bartending for the past 10+ years. She was broke and miserable, and desperately wanted out of the bar scene, which I had been stuck in for the last 10+ years.
She ended up closing four wholesale deals by the end of 2006.
Since then, she's closed more deals than she can count, has written two best selling wholesaling courses (Flip This REO and The Cash Buyer Ninja) and continues to teach others how to wholesale with videos, interviews, and as much useful information as she possibly can, because she knows what it’s like to be a broke beginner, struggling to get that first deal.