Can I wholesale to myself?

Question

If I have a company "ABC Investing Corp" that only my father and I are partners in, can I, Khadijah assign a contract to "ABC Investing Corp" for a wholesale fee?

Also, lets say Khadijah gets a contract to purchase 123 Main St for $50K. She then wholesales the deal to ABC Investing Corp for $65K. After reno, ABC Investing Corp wants to sell the property for $135K so, my father gets it under contract for 135K and wholesales it to retail buyer Khadijah for $150K which she uses a mortgage to purchase.

Am I being too creative with my thinking? What can go wrong here? Can I wholesale to my company and then let my company wholesale to me?

JD Martin · Answer

I'm not sure I see the point. What are you trying to accomplish?

JD Martin · Answer

So what you're ultimately looking to do is have a mortgage for $150k and pull $30k out in cash, is what I see here? Depends on how badly you need that 30 grand. As @Kyle J. described, you're adding a lot of complexity (and closing costs) on a hypothetical.

I assume what needs to happen here is that you need the $15k to rehab the house, so that's where the first swap comes in, and the second swap is where you get paid. But then you just paid yourself with money that will have to come from the proceeds of the next sale of the house. What is your ultimate goal for the house? Hold it? Live in it? Flip it?

Kyle J. · Answer

@Khadijah Celestine

In theory you probably could wholesale to an entity that you own, but it wouldn't serve any purpose other than to create a lot of extra/unnecessary paperwork.

In your first example where you get a property under contract for $50k and then assign it to your company for $65k, I'm assuming that'd be a cash purchase so - while you technically could do that - it would serve no purpose and you'd have to pay an extra $15k at closing.  Why not just write the initial $50k offer in the name of your company and avoid the wholesale aspect of it altogether?

In your second example where your company enters into a purchase contract with your father for $135k and then he assigns the contract to you for $150k, I'm guessing (since you mention getting a mortgage for this transaction) that what you're hoping it will do is create an artificially high sales price so you can get a mortgage on the higher amount (i.e. $150k vs $135k).  However, that won't work for several reasons:

1) The lender is not going to finance the $15k assignment fee

2) The lender isn't going to consider the purchase price in this example to be $150k, they would typically use the $135k price in the original contract, and

3) In this particular example they may not even use the $135k price because it's not an arms-length transaction since it ultimately boils down to a deal between you and your father.

I applaud you for trying to be creative, but ultimately what you're proposing isn't going to work and it's going to make the transaction a lot more complicated than it needs to be.

Mike Cumbie · Answer

Hi @Khadijah Celestine,

I guess I don't really get the purpose. Basically I see that you have paid closing costs twice to take a property you own and in the end still own it now with a 135K mortgage. You can just take out a mortgage on it now or take that closing cost money and fix it up. Take out loans to fix it up and then take out a mortgage at fair value.

I could be missing something though, good luck!

Rocky V. · Answer

I'd recommend adding a consultation fee but seems like your trying to deceive your father.  As long as everyone is aware of what is going on I don't see a problem in adding a consult/assignment fee at closing.

Jasmine Washington · Answer

I wholesale to people with lenders that pay the wholesale fee all the time...if it's a DSCR loan then the fee goes on their side...if it's a traditional lender then my fee goes onto the seller side and I still get paid...

Jasmine Washington · Answer

Did you ever figure this out?

Khadijah Celestine · Answer

Thanks guys! I I knew I was missing something!

@Jd Martin I guess what I was trying to do was to get cash out of the situation as a "low cost loan", just because.

@Rocky V. Ha! I'm definitely not trying to deceive my father LOL!!! We're both trying to get our (well his) money back out, plus a little extra, if we can.

@Mike Cumbie I hate paying the closing costs twice but I want to be able to pay my father back his entire investment.

@Kyle J. Wow, this was really insightful. I needed to understand it in this perspective.

Can I wholesale to myself?

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