Earnest money is bs

God has just been looking out for your boy lately. This week we dodged multiple bullets and it was not because of our wisdom ahead of the incident. Me being me though I can find the lesson in everything that happens so what I am going to do is tell you each story and then tell you the lesson/wisdom that we gained by going through the situation.

The flood and the furnace

So last week we had a plumbing issue where the sewer line in a home backed up and flooded the basement. The tenant called being irate and in my customer service tact I told her we would get right on it and I apologized for the inconvenience.

I sent out a plumber to snake the drain and after he did the flood went away. Because the water got so high the furnace stopped working. I called out a furnace guy and he thought it needed to have parts replaced that would cost us 600. That 600 plus the 125 that we paid for the snake would cause us to lose money this month in rent.

After the basement drained the furnace kicked back on and we saved ourselves a huge sum of money. Keep in mind we just paid big money to have the roof repaired and to handle another plumbing issued last month. This was a big win.

The lesson in all of this is that you have to know how homes work if you want to be in the home business. You can’t just take what people tell you as fact. You can’t just go around throwing money at everything. Resist the urge to have people thinking you have it like that because if they think you have it they are going to try to get it from you.

What I learned was that the water just put out the pilot and all we had to do was wait for the basement to drain which is free 99.

Ernest money deposit

This week we were set to buy a house but we pulled out. We needed to take a step back and coordinate our affairs. When we signed the assignment with the wholesaler we were supposed to send a $500 earnest money deposit (EMD) and I initiated the wire. For some reason this wire got held up and when we decided to walk I just cancelled the wire.

The lesson in this is that earnest money is bs. The wholesaler was of the opinion that she should get the money just because of the time she spent not marketing the property. I was of the opinion that the earnest money should have been refunded to us anyway.

The problem with this is that once the money is gone then you are at the mercy of the title company who can then decided NOT to give you back YOUR money on a home you aren’t going to buy in the first place. We have all heard the stories of investors who lost their earnest money deposit. That wasn’t going to be me.

The lesson is also that I will no longer sign contracts with EMDs. You don’t have to put up an EMD it just helps sweeten the deal. A lot of wholesalers put EMDs into their contracts to ensure that at the very least they get something out of you if you walk. Why should they get paid just because you signed a document and then decide to walk after doing your full due diligence? That isn’t how business works.

The wholesale game is a renegade group of people who just make up their own rules. They don’t have licenses, they are often smooth talkers and most aren’t educated on business and economics. Wholesaling is just a hustle to them. Strike the term altogether. Either they accept it on your terms or you walk. I will no longer put money up that doesn’t go toward the closing and is not refundable.

When I first started my consulting company I did work and then billed after and I wouldn’t get my money. These days I bill upfront and provide the service. That one bad experience allowed my business to become more efficient. This experience is the same. This one bad EMD experience will allow me to stand my grown on not including this term in any assignment I sign. The wholesaler gets paid if we close, period.

You learn these things and you learn what you like to do by being under the pressure of taking action in real game time scenarios. These make you a stronger business person and a more sophisticated negotiator. If you have never felt the pain of certain terms in a contract you will overlook them. For so long I overlooked the EMD until I realized I might be out $500 on something I didn’t acquire.

This lesson applies to anything in real estate. It applies to rehab (we are becoming more professional in terms of dealing with contractors) it applies to renting (how we manage and cater to tenant), it applies to all the lessons we have learned and are still learning in this business. The real life pain sharpens me into the diamond that I aspire to be. Everyone wants to be a diamond but nobody wants to get cut. Get in the game and take your cuts as you move forward and get paid in the process. That is the only way to become the gem that you desire to be.

If you are interested in learning how to invest long distance email charles@capitaltodd.com

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Thanks for reading!

Be great, invest well,

Todd Millionaire

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