Wholesaling a home that has a mortgage owed on it.

[Travis Thornton]

Hello all! I've been learning a lot from this site, and this is my first post. I was hoping to get some opinions on a potential deal I've come across. My market is Tulsa, Oklahoma. Theres a home near downtown in an area that has a bad reputation, but it really isn't that bad, I lived in the area myself for a couple years. This is an older home built in 1930 but surrounded by some newer well kept homes built in 2006-2007 that have sold in the $100,000 range. This home needs some work but is structurally sound. So heres the deal- The owner wants to get rid of it. He owes a mortgage company $12,000 on it. He tells me that he'd be happy to get $3,000 for it. I would flip it but my funds are tied up in a different deal at the moment. So, I figure I could potentially wholesale it. I estimate that with $5,000-$10,000 worth of fixing up it could sell for $42,000-$48,000. My thoughts are I could ideally find an investor to buy it for $17,500-$20,000. That way, the owner gets his $3,000, the mortgage co gets their $12,000, and I get anywhere from $2,500-$5,000. My questions are 1) Do you think the mortgage co would be willing to work with me on this type of thing? (They are an independent company) 2) Would this deal sound promising to you as an investor wanting to fix and flip?  Any thoughts, advice, opinions, concerns, are much appreciated! Thank you all in advance. 

[Peter K.]

Hi Travis. Welcome to the BP community. This is the best site that I've found for networking and sharing REI knowledge.

Maybe I'm confused, so bear with me.  But what does the mortgage co have to do with this transaction?  Are you trying to negotiate a lower payoff?  Unlikely unless owner is behind on payments. 

Here are my thoughts...not legal or professional advice.   Let me know if I misunderstood something.  

1. Write up the offer with as much runway as you can with the seller. 45-60-90 days, if possible. This gives you breathing room and flexibility to find a buyer, with less pressure. Listen to Michael Quarles "Buy Sell Fix Flip" (BSFF) podcasts. This will give a great overview on how to structure deals directly with a seller. This sounds like a great potential oppty for a Subject To deal. But even if seller won't do a Sub-To, the end buyer will simply pay off the mortgage. I would also recommend paying the $100 or so to join the BSFF Academy. This will give you access to all of Michael's forms, including his purchase agreement, which is golden. It gives marketable rights to you so that you can sell the property via MLS or other avenues, while in contract. (Pay the small amount to have a RE lawyer review the form to legality in your state, but find one that specializes in RE Investing ,highly preferralbe if they are a RE Investor themselves). Michael does over 200 transactions per year for many years, with this form.

2. Immediately put bandit signs saying something like "3/2 House for Sale, Cash Only" or words to that effect. This will generate a ton of calls to help build your cash buyers list, and may sell the property. Also if you use Michael's form, you can immediately put it on the MLS (this is called Wholetailing). Depending on your market, you will likely get a higher price than if you do traditional wholesaling. This is because it gets a wider audience, and you get the potential of contractor/flippers, contractor/owner-occupants, and owner-occ buyers that are willing to do the work slowly over time. They often pay much higher than a traditional flipper.

3. Put it on Craigslist, backpage and all of the other RE listing sites. 

4. Once you find the buyer with a fair spread for you simply assign the contract to them for your negotiated price.  Chances are that you will make double by wholetailing it.  I would recommend negotiating a non-refundable deposit of 5%-20% if possible to insure that you have a real buyer that won't play games. 

Whichever route you decide to take, I don't see where the lender gets involved.  They either keep getting their payments via Sub-to or they get paid off at close of escrow.  Read up on sub-to, because there is a slight chance that they will excercise the "Due On Sale" clause, but it rarely happens.  Even if they do, you will have time to find other exit strategies, depending on the foreclosure process in your state. 

None of the above is legal advice, just my 2 cents. 

Happy Investing!

Peter