Is it true, whoever you wholesale deal to must pay cash?

Question

Hi everyone, I'm new here. I have just attended a wholesale seminar and read a bit on this forum. At my seminar they talk about how you need investors who can pay cash. Me being in california where even vacants and cosmetically distressed are still pricey, I was just wondering if this is true or if there is another way around investors not having to pay cash for the property. Thanks in advance.

-Jay

N/A N/A · Answer

That  clarify's things a bunch. My situation is as follows. My fiance is pregnant, I have 30k in debt, and just last week I lost my job. Prior to this I joined a seminar which opened my eyes to real estate and stuff but it cost me 5k, so that added to my debt. Browsing the internet I came to this website and someone on here said, why pay for what you can get for free on the net. And after going through the dvds i got from my seminar, I must say that each and every one of your comments specifically helped me understand a bit better.

I haven't done my first deal yet, but I figured this week, I'd put a add out in the paper to attract sellers of cosmetically distressed property and then in the mean time try to get some investors that may be interested in them.

Thanks to you guys I feel a lil bit less fear as I'm sure you guys know starting out by yourself can be a lil intimidating.

Thank you guys so so much for your input.

If you guys have any suggestions as far as getting a investor database going, I'll also take notew on that.

Thanks again guys.

N/A N/A · Answer

Thanks for all the info, I will give keep this info and keep you all updated. Thanks again guys.

Account Closed · Answer

jhilliard,

1. You said you want to run an ad in the newspaper. Rather than spend the money call the ads in the paper where people say they buy for cash. Most will be investors. Not all have cash (you did not believe the ad, correct). Some will have cash or they will know how to find it for the right deal.

2. Find a job. You will have an easier time getting financing when you have steady employment. It also makes it easier to pay for any marketing your will do when you have income.

3. If you do run an ad in the paper you need to run it for weeks or months before you can tell how well it will work. Hence you have to budget for the long term rather than running 1 ad for a week. Most all marketing is focused on repeating the message and measuring the results over an extended period rather than a 1 off ad.

Good luck.

Note you can use Craigslist and other methods to place free ads. No comments on the likely quality. It can be very effective or a dead end. The price is right to test a few things.

John Corey

PS. Update your profile so your city and state shows. Easier for people to find you if they are local

Account Closed · Answer

The above highlights what will stop many deals when the end buyer is using a conventional lender. The underwriter at the lender will review the file very late in the deal. They will see the title work and note the name on the title as the present owner. Then they will see that the seller of the property does not match. The lender will blow up the deal or they will want to work from the sale price on the 1st leg of the double close or simo deal.

Translated this means you can have a deal fail on the day before you were supposed to close. Very little time to find an alternative. Very likely to upset the initial seller. Maybe enough to blow out the end buyer unless they are an investor and understand why the deal blew up.

John Corey

Ryan Urban · Answer

Just to verify, though, it's my understanding that the group of investors you have developed relationships with already have established access to their own cash or financing.

So unless you're doing a double-closing, the wholesaler doesn't need to worry about financing.  Is that correct?

It seems to me that, at its most fundamental level, the two keys to wholesaling are (1) establishing a large network of investors to contact, and (2) effective marketing to find the deals.

Jon Holdman · Answer

Ryan,
If you find a title company that will do the double close, then the wholesaler doesn't need cash even with a double close.  The money for the wholesaler to end buyer transaction comes into the title company, and that gets used to fund the first transaction between the seller and the wholesaler.

Its possible something could break down at the last minute, and having a plan B (e.g., a hard money lender who can fund quickly if needed) might save a good deal from falling apart.

I agree with your keys to wholesaling.

Jon

Don Sheppard · Answer

Just wanted to say that the last house I purchase was a double/simultaneous close and I used conventional funding. It was difficult though since conventional lenders want to see a contract between the buyer and the owner on title. My broker is a long time friend and worked his tail off to find me a lender that would still loan the money for a double close and it still almost fell apart near the end. I had a HML lined up just in case to jump in at the last moment. 
I am fairly certain that if my broker hadn't been a good friend trying so hard to help a buddy out, that I wouldn't have been able to get that conventional loan. I have a great credit score and most of the usual lending sources and better rates just flat turned us down, so while I did get a conventional loan I also paid higher rates but still better than HML rates. But at least if I needed to, the hard money guy didn't care about the double close, he only cared about the numbers on the deal.

Ryan Webber · Answer

Normally you need to be selling to cash or cash equivalent buyers.  Cash equivalent being hard money or commercial loans.  As Jon shared with you, conventional financing normally won't fly with wholesale deals.

Jon Holdman · Answer

No, its not required.  Its certainly easier, but not essential.  However, if you have to do a double close, the end buyer probably can't use a conventional lender.  The lender will figure out the seller (you) aren't really the owner, and will nix the loan.  Or, they may have seasoning requirements that say the seller much be on title for some length of time, six months or a year.  Hard money lenders or lenders that know they're dealing with investors aren't going to be as strict.

If you do an assignment, its less of an issue because the end buyer is buying it directly from the seller.  But, some sellers, especially banks selling REOs, may balk at the assignment.
Jon