Wholesale an REO without back to back???

Question

Hello BP'ers,  I wonder if anyone can answer a question or knows who can...

Have you heard of wholesaling an REO without a back to back close? Since you can't do an assignment.

I heard the wholesaler gets it under contract then adds their buyer on the contract as an addendum with them both buying it.  Then at close the wholesaler does a Quit Claim Deed to the buyer in exchange for their fee.

My question is, can 2 LLC's be on a contract to buy one property?  Or would the owners of the LLC need to list themselves as individuals?

Thanks for your help!

Melissa

Bill Gulley · Answer

Add your buyer's LLC to your LLC as a member, contract in the name of your LLC. Your buyer funds the closing.

Your buyer's money goes to his capital account, then to closing, the asset of the property then goes to his capital account in your LLC. This is the legal accounting required within the LLCs, your buyer controls the property through the Operating Agreement.

Sellers or lenders cannot control who you admit or release from an LLC, nor are they privy to any member joining or leaving the LLC. You are free to operate your LLC prior to and after any closing, just ensure no one asks for any agreement to the contrary but I've never heard of any bank asking for any restriction to membership of an LLC. In fact, if they did they would be taking on a business liability as to restricting management operations by doing so!

If the bank (seller) has any deed restriction to assignment, the property remains in your LLC under the management of your buyer, in their account, when the deed restriction expires you Quit Claim (because the parties to the QC are related to the business) to the buyer's LLC.

The buyer's LLC (or the buyer personally) may file a lien on the property at the purchase, not really necessary but it may make some buyers feel warm and fuzzy.

Your fee is best paid by the buying member to your LLC, this is an internal transfer from the buyer's capital account to your LLC's operations account as income. The buyer deposits 100K to the business account of your LLC when the join, 10K is then "booked" to your LLC and 90K remains in the business account for settlement. You just got 10K that you could withdraw minutes later from your business account.

This method avoids licensing issues as a wholesaler, as long as the property remains in the purchasing LLC's name you can avoid any transfer taxes, since the buyer is admitted to the LLC prior to closing. More importantly, you avoid the assessment of services where you can wear the hat of a seller to your buyer instead of just providing a service of facilitating a transaction because your LLC took title. Management can be under your Buyer's LLC, they can advertise as an owner with management covered in your operating agreement.

Insurance is in the name of your LLC, you can add the buyer or the buyer's LLC as a loss payee and you can also address any loss claims in your operating agreement.

Since the buyer is managing, they hold harmless and agree to indemnify your LLC for and against any and all claims. Your buyer's LLC should have liability insurance, but that's a plus, not a requirement.

All you're doing is renting out space in your LLC for a fee, like a holding company and it's all accomplished in the books of the LLC. Your buyer can have their accountant keep the books of their capital account if they wish or anyone agreed to, you can do it if they agree. In reality, your buyer owns the rights to ownership and title is simply held in a name, behind that name the buyer controls that asset.

Your buyer can also have signature authority to do anything with that property in the name of the LLC in title, obtain building permits, lease, sell or encumber by any mortgage.

You can have any number of LLCs admitted to your LLC. $$$$$$

You'll find more details on the GREA site later on this year, it's not hard or difficult and it is legal as well as secure. :)

Bill Gulley · Answer

Well David, they need to know that forming a new entity, needs to be done prior to contracting, you'll need the articles and your operating agreement, bank account, tax ID number and any business license. Any offer made before you're legally established just falls to you personally, any good lender will have issues with a contract offer made on Sept 20th and the business formed after that date. So you need your buyer picked before you contract.

The other issue is that a buyer of a business entity takes on a risk of the company's position after it was formed, was the company in compliance, are there any liens, any outstanding contracts was the company properly funded to buy, while it sounds simple, it's not so simple and I wouldn't buy an existing company without due diligence which could take a week or two.

Cheaper depends on the state too, the second closing can be negotiated since the title company already has the data and docs from the first and is control of the first settlement and the second.

What I mentioned above only takes one settlement, then a filing later on as needed. You will have tax reportings with either method.

For those who understand real estate, settlements and business formations, you can use a letter of intent or a sale contract contingent on the business formation being completed prior to settlement. This contingency is an easy sell and buys you more time as well. And no, your failure to form the entity is not a wiggle out clause! All anyone needs is a financing contingency which is acceptable to most any seller, even with REO/ORE.  :)

David Dey · Answer

or very simply, create a single assert entity. Then contract the property into that entity.  Sell the entity for your fee.

A lil more expensive then the other ones, a lot cheaper than a back to back, a whole lot cleaner.

Brent Coombs · Answer

@Melissa Card, in case you missed it, mentioned by Chris, I'll rephrase it: only try to Wholesale an REO - AFTER you have locked-in Buyer/s committed to paying "almost full retail"! Cheers...

Chris Mason · Answer

Hi @Melissa Card,

It can be closed.

Your details are wrong, but you've got the concept.

Get the REO tied up, and the qualified end-buyer lined up (preapproved for a fannie/freddie mortgage with 5% down, or whatever, is fine... they are paying almost full retail, which is excellent news for you), and you will have differentiated yourself from ten million other "get rich quick" wholesalers, and we will be ready to chat about details. Proof that you have the liquid cash (in a checking or savings account) to purchase the place yourself also works as proof that you are ready to chat.

You can have your LLC on your paperwork. The end buyer cannot have their LLC on the paperwork.

Account Closed · Answer

@Melissa Card 2 LLC's can buy it but why can't you do assignment again?

Wholesale an REO without back to back???

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