Wholesaling With Conventional Loans

[Paul Ketchens]

Hi Bigger Pockets Family. Can someone be kind enough to explain the process of using a conventional loan to do a wholesale deal.

Thanks

Paul

[Lydia R.]

Quote from @Adam Macias:

Quote from @Jesse LeBlanc:

@Lydia R. completely understand your concern, and as I said before it's case by case depending on ones relationship with each party.  At the end of the day, there should be no reason lie or deceive anyone to get a deal closed, and not saying you or I am but I know so many others intentionally lie to sellers to get a deal under contract. 

There are a few ways to protect yourself and make sure you still collect your fee, one is as simple as being the one facilitating the contract to both seller and buyer.  In the special stipulations BEFORE you send to your seller and buyer is that you write in that X amount is owed to you and to be shown on the sellers side.  It's as simple as that.  Then when both your buyer and seller sign the contract and you send to the closing company, there are no questions asked, you're protected and you get your money at closing and the end buyers lender can't say anything about it plus they won't know what the actual contract said anyway.  @Adam Macias the above paragraph answers your question about security and making sure you get your $

If your seller has a problem with your fee, then you clearly didn't have a good relationship or not transparent with the seller and you didn't set proper expectations from the start, thus causing a potential surprise later.  I know what you're thinking right now, what if the spread was such a huge amount.  If you then feel that to be the case, no need to lie, just find a 2nd option to still be able to close the deal, which might be to buy the property with your own capital, with private money or hard money then as soon as you own it and on the deed get an UPDATED contract with the end buyer now that you are legally the owner and have the right to sell and there won't be a problem with the conventional lender.

ALSO, i'm NOT saying that this is for EVERY lender either.  Hints why my original message stated to communicate with the buyer and their lender as MANY of them don't have a problem still lending once they know what you're doing and that you will legally be the owner at the time of the BC closing.  Once they understand that, then you should be perfectly find double closing without a hitch, BUT you want to know that first vs waiting until the day of closing and the underwriter realizes you aren't the owner and they stop the transaction until further notice.

I 100% agree that its so much easier with a cash buyer, buyer with private funds followed by hard money then conventional.

No, I don't offer any short term loans but do have friends that do.  They are still treated like normal loan and must be underwritten because there is no "guarantee" like a transactional loan because the buyer could easily backout or something happen after the first closing if both are simultaneous.  I've done this a few times and got burnt, waiting 3 weeks to 2 months to finally get the 2nd one closed out again after it was expected to just be 2-5 days after the first closing...THINGS HAPPEN

@Adam Macias about your next statement, you're talking about a BLIND HUD, thus not disclosing and otherwise hiding your fee from someone. That means you weren't transparent and afraid of losing the deal because of the money you're making. I've been there, I get it, but there shouldn't be any shame in creating a profit from SOLVING a sellers problem. They clearly were ok with the price you paid, it solved their issue and you're a for profit business. BUT I also get that in some scenarios it is best to simply double close (or in your market do a blind HUD/Settlement Statement and assign) to keep the deal alive and this could also be that your seller is fine with what you made but you have a buyer that is greedy and upset with your profit and could walk away (i'd never sell to a buyer like this anyway) so that would also be a great time to double close or blind hud as you do. and BTW, more and more states are stopping this from happening, so be careful not to only do wholesale deals one way or you may cause yourself some major problems down the road.

Well, clearly you have a business to promote double closes but I'm not a newbie and I'm here to tell newbies double closings come with more headache and costs than they're worth in my opinion. There's very, very, very specific circumstances it's necessary but definitely not when you're starting out. The biggest thing people need to understand is that 99% of the time a seller is not concerned, cares or even knows what an assignment fee is. I know what a seller side only HUD statement is and what a blind HUD statement is. Even without having to do those, again, I'VE YET TO HAVE A SELLER GET UPSET because this only comes up when people believe they're doing something wrong or don't have the confidence in their buyer or confidence in knowing they can wholesale. Just my take. Double closings are barely needed.

 Not a newbie either. Never had a problem with a seller because I always do blind HUDs but I had a buyer try to sue me over an assignment fee so I learned the hard way there are absolutely situations that call for a double close. Every single time I have double closed it has been to prevent my end buyer from finding out how much I was making. My philosophy has always been, if it's a good deal then who cares. But not every buyer subscribes to that same ideology. The frequency of double closing, at least in my business, depends almost exclusively on how great our deals are and the size of the fee. I think double closing is necessary sometimes and newbies reading this should know how to determine if a double closing is necessary.