The Infamous Daisy Chain… Can It Work?

If you have Buyers that are experienced, they know the drill.  A wholesaler gets a deal and pushes it out to their Buyers list.  Then all the wholesalers on that list send it to their Buyers with some marking up the price.  And then the next level does the same.  And somewhere in there are the bird dogs that literally do nothing but press the forward button thinking ‘easy money’.  Problem is the Buyer is on all of these people’s lists.  Depending on the timing, he may see the lowest price first or one much higher.  Or maybe the Buyer is not on the primary wholesalers list so he never sees the original deal.

At this point, the Buyer naturally goes to the lowest price wholesaler to get the deal.  But if that wholesaler doesn’t control the deal, then the relay of information from wholesaler to wholesaler begins.  And more often than not, inexperience or greed or dishonesty shows its head.  You’ll find few cash Buyers are stupid so they pick up on this and walk from the deal.  People can sense when something is up and all it takes is one less than confident conversation to kill the opportunity.

This is the infamous daisy chain…where a deal gets shared widely and quickly to the point that it appears that no one knows who is in control.  And I will tell you, there are plenty of wholesalers who are not the most honest when it comes to this.  They will mark deals up with extravagant prices changing the comps to ‘justify’ the higher price.  They will tell you they have the deal under control when in fact all they know is the next person in the chain…ironically someone they probably barely know themselves except through e-mail.  It tends to be even worse over text messaging than e-mail. 

(Side note:  Easily the best business still happens over the phone or in person in my opinion)

My goal is not to be negative but to simply make it clear that these situations are not at all unusual especially in our addicted to e-mail/texting society.  So what do you, as the wholesaler who is honest with integrity and just trying to make a fair buck do?

The answer is simple…take control of the deal.  As close to complete control as possible.  You don’t even have to be the one with the deal under contract to make it happen.  You just have to be the one who sees the big picture from end to end.  In doing so, now you can see all the parties involved and identify any potential pitfalls upfront and ensure they are handled.  And if you happen to be ‘close in the chain’ to the Seller or the end Buyer, it is even easier.  Here is an example:

We once had a deal where a wholesaler brought me what looked like a nice deal.  He was a legitimate experienced wholesaler.  Turns out I may have had a Buyer for it.  In learning more about it, I presented it to my Buyer who was very interested.  As soon as I mentioned this to the other wholesaler, I then learned there was a ‘partner’.  ‘Partner’ by the way is a very overused word in the wholesaling business common with daisy chain so when you hear it proceed with caution.  So at this point we had:

Seller, Wholesaler, Wholesalers Partner, Me, Buyer. 

We are up to five parties already.  I trusted the guy who brought me the deal so I stated we can do the deal as long as the closing attorney held the earnest money.  So far, so good.

Then I find out that the wholesalers partner was mentoring a new wholesaler and somehow he was in on the deal.  So now it looked like this:

Seller, Wholesaler, Wholesalers Partner, Wholesalers Partner Mentee, Me, Buyer.

So now there are six parties.  I was already thinking a double close would be necessary as my Buyer was ok with paying one wholesaler.  Paying four on the same HUD was simply not going to fly.  So what did I do?

I modified the contract making myself the Buyer of the property requiring full disclosure of all parties involved and be named on the HUD with their fee.  I didn’t care what they were making.  I did care that everything was clean and over the table.  I then put up the earnest money myself having the Buyers moved to what would not be a B-C close.  So when we went to close, there were five parties on the HUD for the A-B with me as the Buyer but when my Buyer bought it, it was a straight Seller to Buyer sale with no middleman.  I had to fund the deal but that was ok since I got paid back the same day.

In doing this, all parties were happy.  The wholesalers were happy because they all got paid.  The Buyer was happy since he was Buying from a trusted party and got a clean deal with clear title.  The attorney was happy since they tend to also frown on daisy chain deals because they understand how often they fall apart.  All of this was because I took ‘control’ of the situation.

There are many ways to accomplish this and every deal is different.  The point is not to be a dictator but simply do the following:

• Require full disclosure of all parties involved
• Ensure you build a relationship with as many people involved in the deal as you can so they know you are serious and develop TRUST
• See that effective communication happens all steps along the way with all parties
• Leave NOTHING to chance. Most people undercommunicate.  Overcommunicating is a much more effective approach.

By keeping these steps in mind, you can take that ‘impossible to put together deal’ and make it possible.  It will take some extra work but if the numbers are there, it may be worth the effort.  And the side bonus is you may just meet a new colleague to do future business with as well.  Keep an open mind and remember full disclosure is always a benefit to all parties in a transaction!