wholesaling questions....

[Eric P.]

i have a few questions about wholesaling, i can't seem to find much information online that really helps me, at least for free...

from my understanding, when you wholesale a property, you are finding a property (usually a fixxer upper) that is well below market price, that probably needs some repairs. after adding estimated repair cost to the purchase price you are left with a large amounty of equity, making it a good buy.

now here's the part i don't quite understand... i am supposed to get this property under contract myself, then assign it to an investor looking to fix it up... so what happens if i can't find a buyer??? i have to buy the property myself or lose my deposit, right? and i would have to be pre-qualified to put in a bid/offer, right? so i have to have a tri-merge pulled everytime? that would kill my credit pretty quickly.

i would appriciate any answers one could give me...

Thanks,

Eric

i

[Chris Piper]

Wholesaling is simple guys. You don't need credit, money, income verifcation, pre-qualification from a bank, a realtor or broker's license, or any of that. 

Here is a quick run down of wholesaling:

1. Find a motivated seller. Motivated only. This allows you to make an offer of 40%-60% below the ARV (after repaired value). Decide based on pictures of the property you are buying or by walking through the property how much the repairs will be. A good rule of thumb is that if the owner says the place is perfect, it'll need $10k in repairs. If you see it and it's a dump, multiply the square footage by $25 and that will be a ballpark of the repairs.

EXAMPLE:

Seller wants $50,000. The ARV is $100,000. The house is 1,000sf. It's in bad shape and needs a lot of work. An investor will want to make $10,000-$20,000 at least when they rehab it and sell it. So it will need $25,000 in repairs.

$100,000 ARV

-$25,000 Repairs

-$20,000 Profit for Buyer

-$3,000 Holding Costs/Interest for Buyer

-$6,000 Closing Costs to Buyer

-$6,000 Your Assignment Fee

MPP (Max Purchase Price) $40,000

That means you can offer a max of $40,000 for you to make your $6k assignment fee, and for the buyer to make $20k. This is just an example.

2. Make an offer and get it accepted. If your offer isn't accepted, negotiate or move on to the next deal. In your offer, for the buyer's name (you), put "your name and/or assigns." This means when you find a buyer, you can assign it(sell it)to them. Also, put in a contingency: Subject to my funding partner's inspection. Even though you might not have a partner, it's a way out in case you can't find a buyer. Also include as long of an inspection period as your seller will let you get away with (15 days/30 days). And put in a closing date of 30 days from the day you and the seller sign the contract. Lastly, always make sure your contracts with the seller and your cash buyer are "Net to Seller" which means the buyer pays all closing costs, check the box on the contract that says "buyer pays title insurance", check the box or make a note if no box "buyer may assign contract."

3. Find an investor friendly title company and send them the documents for the deal. They will handle everything. If the title company needs an earnest money deposit, use the money from the cash buyer you will find to cover it. Only give a deposit if needed directly to the title company. NEVER GIVE A DEPOSIT DIRECTLY TO A SELLER! See next section for more details.

4. Find a cash buyer to assign the deal to. Maybe someone you know, put ads on Craigslist, put out bandit signs, pay for a cash buyer's list, go to local real estate investor's association meetings. Once you find a buyer, get a minimum $2k non-refundable deposit from them upfront. That way if they can't close, you get to keep the $2k. Now assign the contract to them once you have their deposit. Make sure you document the $2k deposit on the assignment contract. Make sure your buyer has cash or a hard money loan to close on time. Your selling price shouldn't ever be over 70% of the ARV including the property, repairs, closing costs, your assignment fee, etc.

5. Wait for the deal to close, and the title company will either mail you the remainder of your assignment fee, wire it to your bank account, or you can go to the closing and get your check that day. Keep in mind a typical closing takes 30 days from the time you sign the purchase agreement with the seller and the title company has a the documents.

That's it guys. As far as getting more detailed info on wholesaling, check out posts on this website, join real estate mogul, and look for info from big names in the real estate world like Preston Ely, Rob Swanson, Cody Sperber, Kent Clothier, etc. 

Hope this helped clear things up.