Ok, so you’re ready to be a real estate investor and start pulling down some serious coin flipping houses and wholesaling and all of the courses that you read say you don’t need any money or credit.

So you’re thinking, what could be easier! So you find that special property that you want to get under contract and you submit your offer and you get laughed at because you bought some lame course that said you could buy houses with only a 10 dollar deposit.

We had fun making this video and we have a couple of quick editing scew ups but we’ll keep honing our craft. You can count on that!  [watch the video and read the transcript]

Now you’re embarrassed and ready to go back schlepping burgers or stocking shelves at Walmart. (not that there’s anything wrong with schlepping burgers or stocking shelves…nothing whatsoever)

Don’t worry, we hear this all of the time and people wonder how they can buy properties to wholesale if everyone wants a deposit. What’s the newbie investor to do?

Well, don’t worry, we’re gonna break it down for you right now.

But first, here’s a little background on the whole Earnest Money Deposit scam. You see in order for a sales contract to be valid in most states, there has to be consideration. That’s a big word for some money has to change hands. Notice I said some.

The laws in your state may be different but for the most part consideration to make a contract valid can be as low as $1.00 or $1.00 in value. So it could be a dollar bill or a dollar’s worth of gold. It’s still consideration under the contract law of most states.

Where things get tricky is when Realtors tell Sellers that they need to get a big deposit to “make sure they have a serious buyer”. That’s Realtor speak for… “I wanna get paid and I don’t want to deal with Investors or people who don’t have any money”.

So where does that leave the Investor who is short on cash but wants to buy properties to wholesale. After all, flipping houses is a seriously fabulous way to make some doneros.

So let’s look at 5 Ways you can deal with the deposit issue.

Step 1. Sorry to inform you of some bad news, but if you’re going to be flipping houses as a business, you’re going to need to scrounge up $500.00 to $1,000.00. However it will be the best money you’ve ever saved. Unless you are dead broke, homeless and unemployed, you should be able to get this money set aside.

This is going to be your business. Borrow it from Mom or Uncle Charlie, pawn your big screen, save a little each week..do whatever it takes to get this cash set aside and put it in a checking account.

Step 2. Now you’ll be able to write a contract and put the deposit amount down and be taken seriously. Don’t worry about losing the money, it’s just like putting it in a savings account. In fact when I got started that’s what I told my Mom. I asked her if she would put $1,000 bucks in an account at my attorney’s office and he would hold it and I would never spend it.

It was an easy arrangement. Once she realized that I wouldn’t be spending it at da strip club she realized it was really safe and pretty much a no-brainer. If you want to know how we set this up with the attorney, email me and I’ll fill you in.

Tip 1:We always use attorney escrow accounts. Not realtors or title companies who are not run by attorneys. Why? Those three words we keep saying over and over again..Attorney Client Privilege.

Step 3. Make sure that you include a clause in your contract that guarantees you a free look. All of our contracts call for a 5-10 day inspection period. This is actually a free look period. During this time you are busting your hump marketing the property and if you don’t have a buyer you can bail on the contract without putting any money at risk!

Tip 2: Make sure you write in that you can cancel the deal at any time prior to the end of the Inspection period to remove any contractual ambiguities.

Step 4. Get an Escrow Letter from the attorney. Most Realtors want copies of checks to prove that you wrote the check and actually have a deposit. Although it happens all of the time, why would anybody give someone a copy of a check with their account numbers and routing numbers on it that may be faxed, emailed and seen by a bunch of people.

Instead, a letter from your attorney stating that he has the deposit will more than suffice and you don’t have to worry about any privacy or confidentiality breaches.

Step 5. Real estate contracts have a lot of legalese that you’re not going to understand. So simply write in that your deposit will be returned immediately upon cancellation of the contract and that no further notice need be given.

Trust me, we live in a very litigious society. Even though you think you’re covered you may not be. Making statements to ensure that you are protected is the way to go. It’s also why we NEVER let the other side hold our deposits. We feel so strongly about this that we will walk on a deal, no matter how sweet it is, if we are not protected.

FYI..having it sold with a non-refundable deposit from our Buyer is some serious protection!

Factoid:Did you know? That if you do some marketing and deal directly with homeowners that the earnest money deposit issue goes away. Homeowners are’nt worried about commissions and most will take a contract with even $100.00 as the deposit.

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What Kind of Fool Am I? Wall Street Journal, on Fri, 14 May 2010 By then, the buyer has made an earnest money deposit, and is both emotionally and financially invested in your acquiring your home. …

It’s the Mortgage, Stupid Housing Wire, on Thu, 20 May 2010 16:53:46 -0700 Then too the home ownership lobby would resist – a significant down payment is a big obstacle to home ownership for low and moderate income buyers. …