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Critical Real Estate Investing Mistake No.3

Published on Tuesday - June 19, 2012

When is a real estate investing deal really closed? When can you count on the money?

We’ve all heard the saying “Don’t count your chickens till they hatch”. So why is it so many real estate investors fall into this trap time and time again, often with devastating consequences?

So when is a deal really done?

  1. When an agreement is made?
  2. When a contract is signed by both parties and a deposit is made?
  3. When you sig the closing documents?
  4. When the deal is funded and keys are exchanged?
  5. None of the above?

‘E’ is the right answer in many cases!

Those new to real estate investing get so excited when they get an offer signed. Unfortunately this is just when the real work begins.

Recently some investors have been reporting major nightmares when attempting to buy REOs and foreclosures, especially in cases where the seller controls the title or escrow agent. In one recent case an investor wired in over $200k, thinking the deal was done, only to be told the other side needed a 21 day extension to fix a title issue. Worse, the investor was told their money couldn’t be returned unless the bank authorized it. Talk about time to get an attorney.

Real estate investing deals in which mortgage financing is involved can be even more trying. It still isn’t uncommon for underwriters to come up with new conditions at the last minute or even on the day of closing. Most experienced real estate investing pros are accustomed to this but the mayhem doesn’t always stop here either.

Usually the advice is not to count on your money from a real estate deal or having control of a property until the closing docs are signed and you either have possession of the keys and title or the proceeds have been wired to your account. Unfortunately, this doesn’t always mean you can go on an immediate shopping spree and blow it either. In some cases lost lender paperwork or discovery of potential fraud or red flags has caused lenders to demand wired funds be returned or loans to be repaid immediately.

The bottom line is real estate investors need to be careful when counting on a deal closing and especially cautious about lining up consecutive deals, contingent on funds from another, or face a domino effect.

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