Say you met a homeowner who is selling their house. Typically when you go under contract with the homeowner, they understand that a sale price must be agreed upon and a down payment amount will be brought to the table to close. As a rule, you never ever give down payment money to the seller. If you do, you will most likely lose it. This being so we always give down payment money to our attorney or title company handling the sale.
On the day the contract is being drafted up, at the homeowners house, attorney office or title company, you don’t give anyone any down payment money. You aren’t suppose to put down any down payment money until you are out of attorney review and out of your x day window of inspection. That means you have have time to find a buyer or cancel the contract.
You just got to make sure to write up the paperwork with the seller saying your buying the property for $500k and how much you will put down after x day of due diligence. Typically I put “I will put 20% down after 30 days of inspections/due diligence.” << This is very standard in the industry. This being said, in essence you don’t even need the $1 to put a property under contract.
So why is the $1 even needed? Some states require an actual consideration to be conveyed this being so I use $1. Whenever I have to do the $1 consideration with the seller, what i typically do is sayd say, to make this “contract legal and binding I have to give you some sort of consideration, here is $1.” Once this dollar is exchange and the contract is sign, i now have control of the property. That means if I put the property under contract as an llc, I can now sell the llc. If we signed a contract that was from the beginning assignable I can now assign it.
Note, this $1 earnest money strategy does not work with deals on the MLS. The reason for that is because Realtors expect $500 to $5k as earnest money to put a property under contract. Read how to flip houses on the MLS to learn more.
Like my write up? Want to learn more on how to wholesale houses? I invite you to look into my Wholesaling for Quick Cash training video. Go to the link and scroll to the middle of the page for a 20 minute segment of the video.
*This is not being promoted as legal advice. Please speak with your attorney before doing any of the above.