Wholesale

[Kurt Schmid]

I just want to make sure I completely understand the concept of wholesale real estate. Please respond if I need correction.

You negotiate a deal with the owner of a property to buy it at a discount. You sign a contract with this person. Is this a normal contract, the same as you would sign if you were buying any other piece of real estate through an agent? Is there a special contract used when you wholesale?

You then turn around and sell the property to a real estate investor for more than your purchase price but still at a discount to the value of the property if fixed up. I know there are two ways to do this, one is to assign the contract you signed with the homeowner to the investor. Again, what kind of contract is this and where might I find a sample? The other way is to close on the property yourself and then sell it to your investor. Ideally the closings would happen nearly at the same time. If you do end up closing on the property yourself before you resell it, do you need to have financing in place? Even though you won't actually need it because you sell it right away?

If I have missed or gotten any steps wrong please correct me. Thanks. I am just starting out and I'm trying to learn as much as I can about real estate investing before I get started. Ideally I am looking for someone in my area to speak with and possibly mentor me for a short time. Does anyone live in the SF Bay Area who might be interested?

[Ryan Webber]

Yes, a purchase contract can be assigned if it is agreed in the contract that it is assignable.

I've heard a couple people ask about option contracts lately. As far as I know, an option contract is merely a purchase contract with an option period. I've never seen just an option contract. An option period inside of a contract is a right that you can purchase that will give you the right to rescind the contract for any reason for a certain period of time. I normally do not use option periods in my contracts. If you wanted an out, you can just put in a contingency or two. Or I guess if you wanted to be overly proper about it, you could pay for an option period.

Advantages of working with an agent? I didn't know there were any.

:whistle:

Okay, I'm just kidding. If you are working with a "good" investor oriented agent then there can be several advantages. One, they can help you find deals. Two, they can help you build your network. The first realtor I worked with set me up with two hard money guys. Third, they can help you sell your deals.

In reference to your taxes, anything that you sell within a year of owning it is taxed as ordinary income, including assignments and double closings. Now whether you pay SS/self-employment tax on all of your proceeds depends on your entity structuring.