Wholesaling in NYC (Brooklyn)

[Ian Forde]

Hi everyone!

I started a company in Brooklyn, NY in order to do wholesale deals on residential properties. After speaking to various lawyers, I was told that sellers will expect me to put anywhere from 5-10% down on a property. This threw me off because from everything that I have read, wholesaling is a low cost way to get into the real estate game. I was told no one will ever agree to a $10 - $100 deposit and basically I need to be putting down 100k on a million dollar property just to make a few thousand (LOL).

As you imagined, I am slightly discouraged. Please let me know if there is a way that I can successfully wholesale in NYC PLEASE!

[Frank Chin]

Originally posted by @Ian Forde:

Hi everyone!

I started a company in Brooklyn, NY in order to do wholesale deals on residential properties. After speaking to various lawyers, I was told that sellers will expect me to put anywhere from 5-10% down on a property. This threw me off because from everything that I have read, wholesaling is a low cost way to get into the real estate game. I was told no one will ever agree to a $10 - $100 deposit and basically I need to be putting down 100k on a million dollar property just to make a few thousand (LOL).

As you imagined, I am slightly discouraged. Please let me know if there is a way that I can successfully wholesale in NYC PLEASE! 

Welcome to the world of real estate investing. I like your comment "told no one will ever agree to a $10 - $100 deposit and basically I need to be putting down 100k on a million dollar property just to make a few thousand (LOL)." I'm curious whether you expect someone to received a $100 deposit, let you play around with a $100 million dollar asset. 

As you should know duplexes in many neighborhoods go for $1.2 to almost $2 million in NYC. In recent years properties jump in value by more than $100K a year. I bought a duplex, 6 years old at the time, at the market bottom in 1993, for $200K in a foreclosure auction, and is currently worth $1.2 million. If I let someone I don't know tie up a property for a measly $100, he's holding on to it trying to get top dollar for himself, and I have no control over it, and he bombs out, all he's out is $100 dollars. I'm out at least 10 times more. In NYC, the market can move sharply up, and then just as suddenly sharply down, and I went through two cycles, one in 1986, and the 2nd one in 2006. I believe we're due for the next one.

Back in 1984, I partnered up with someone thinking of what you're doing. In his case, he's a licensed agent doing deals on the side, where he finds pre foreclosure deals, tie it up via assignment contract, and then find buyers to flip to. He has no money to put down and he went around first looking for money partners and I became one of them. I already got 2 triplexes and looking to invest another $30K, but wasn't ready to get another rental, so the deal appealed to me. Got a SFR for $70K, worth $130K with minor rehab. The deal is I put the money in and split the profits 50/50 if we manage to sell it. If we can't flip it, the backup plan is I close on it, and he gets zero, and I get to keep the property.

Long story short, we found buyer for $129K, ready to close on it, and one week before closing the buyer defaulted, but demanded his $12.9k deposit back. I fought back, kept half of the deposit, and paid him the other half. I kept the SFR as a rental, is mortgage free for 10 years, current ARV of $465K.

What did I learn from this? My partner had no skin in the game, ask for top dollar which we finally got after holding things up for 6 months longer, past the expiration date of the assignment contract, and getting extensions. I kept the seller from walking away after fronting $30K, the seller's equity. I did it 3 times. I was finally able to close on it qualifying for a mortgage instead of flipping. The other thing I learned is if you have money behind you, you can make deals. When the seller was going to walk away, I said "you need another $10K?" He badly needed it, had loan sharks after him, had no choice. Some guy only able to put $100 dollars in to tie up the deal, can't perform would in this case get the seller killed. 

The funny thing is when I was going to give the seller another $10K, his lawyer called me and told me NO, I'm giving him too much. Lawyer says "I'm looking out for the both of you".

All in all, if someone offers me $100 to tie up something, a $100 million deal, I would think "what's this guy thinking?". How much does he know about real estate.