How I’ve Made Hundreds of Thousands of Dollars with this Creative Real Estate Investing Secret
I heard a story recently about an investor that contracted a great deal but ended up losing it because he didn’t know the insider secret that has made me hundreds of thousands of dollars since I got started.
He began his due diligence shortly after he contracted the property like he normally would, ordered a title search, and set a tentative date for closing. After further analyzing the deal, he realized everything was good to go. The attorney said the title was clear, and he had his financing lined up.
Then, the unthinkable happened! He called the seller a week prior to closing but did not get a returned call. The seller had evidently fallen off the face of the Earth. His frustration continued to mount as he continually called and visited the property to track down the owner week after week until one day, there was a car in the driveway. But it wasn’t the seller’s car.
Come to find out that the seller contacted another investor after signing the contract, got a better offer, and sold it to another investor. The investor that bought the deal said that the seller told him that he had met with other investors but assured him he hadn’t signed any paperwork.
If you do not know the secret to protecting deals you’ve contracted, it is not a matter of whether or not you will lose a deal to another investor, it’s a matter of when.
You may be saying to yourself that the seller is contractually required to sell the property to you under the agreed upon terms, and you would be right. But now you’ve got a decision to make. Do you chalk this one up as a learning experience and make sure you protect yourself next time or do you hire an attorney? And we all know who wins once attorneys get involved.
I am fortunate because I learned early on from my mentor how to protect myself to prevent situations like this from ever occurring. Since I chose to join a real estate investing mentoring program, I didn’t have to learn from the school of hard knocks.
How to Protect Yourself from Contract to Close
After you get a contract on a property, you want to file the correct paperwork so that the world will know that you have an interest in the property. This technique will cloud the title so that no one will be able to get clear title to the property without going through you. We do this to protect our interest in the deal, not to cause the seller any problems with their property.
There are two different forms that can be used to do this. One is an Affidavit and Memorandum of Purchase and Sale and the other is a Notice of Purchase and Sale. The only difference between the two is that the affidavit is signed solely by the buyer. The Notice of Purchase and Sale is signed by both the buyer and seller. The Notice is a stronger document but both require a notary. So, if you meet a seller and it is not convenient to have a notary present, you can simply use the Affidavit.
One very important thing to make sure that your form does is to cross reference the deed. This is so that when someone does a title search, you make sure that they find out that you have an interest in the property. If a title searcher doesn’t find your paperwork, it’s not going to do you any more good than having not filed it in the first place.
We have saved many deals over the years that have translated into hundreds of thousands of dollars by using this creative real estate investing technique. Put yourself in the driver’s seat by clouding a property’s title after contracting it. You’ll thank me later.
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Patrick Riddle:
Dusty Keefe:
Thanks for the great tips!
This is one of the most important pieces of paperwork in investing. It is a great feeling when your phone rings and it’s another investor telling you their attorney found your name in the title search. Not only is your deal saved, but you have the added bonus of having someone who is interested in the property on the phone. Now you have the option of entering into a conversation with that investor about an assignment fee, partnership, hard money loan, or some other type of arrangement.