I recently read a description of wholesaling to him, and he immediately had objections. The example was simply contracting for a distressed property from a seller, finding a buyer, contracting with the buyer. The buyer pays the wholesaler who then pays the seller. My husband’s objections/questions were number one, what if the money owed on the mortgage exceeds the price I’m willing to pay as a wholesaler? And number two, what are the taxes involved and who pays those?
Can you buy distressed properties directly from a bank? If the bank has the mortgage on their books but the county owns the property because taxes have not been paid, can you still get the property from the bank?
I’m trying to learn all I can, and believe this to be an excellent investment opportunity but I need some hard facts. Any information you can share would be so much appreciated, thank you.
Specialist · Purcellville, VA · Member since 2015 · 1k+ posts · 841 votes
7y
There are a lot of resources online. You want to get a GOOD understanding of what wholesaling is and how to do it properly. I took a class and believe I have a great understanding of how it all works. It's a lot more than a message board post. So my first advice is to learn, learn, and learn. You don't have enough of an understanding unless you can explain it to your husband. Just ask my wife! lol
Ok, so here's a short description. I hope I do it justice.
First, you market. You market and market and market. It's hard to find a good deal, and only a good deal with work. To find a good deal, you have to know what your Maximum Allowable Offer (MAO) is. It's effectively 70% of the ARV (After Repair Value) - Repair Costs - your minimum fee. So you have to figure out how to find ARVs (hint: COMPs), and do good repair estimates. If the numbers don't work, such as when the seller owes too much to be able to sell for that amount, you walk away. It's not a good deal. Let's say you find a property that could sell for $200,000 all fixed up, and there are $20,000 in repairs that need to be made. You want to sell at $120,000 to your buyer. If you want to make $10,000, then your MAO is $110,000. When you negotiate with the seller, you know you cannot go above that number. Negotiation is a whole nother topic - the subject matter of many good books.
Ok, so you have this house, and the seller will sell to you for $110,000. You put it under contract where you, and/or your asignees, will purchase the house. You need a good contract that includes the ability to back out if things don't work right. You don't want to back out, but you might have to. Say you take a buyer to look at it and he realizes it needs a lot more work. (First, you didn't do a good estimate - bad girl!) Now you need to back out of the contract. If effectively failed inspection. Maybe you can renegotiate; maybe you can't.
If the buyer is all on board, you execute an assignment contract with him. Effectively, you're assigning your rights and responsibilities in the first contract to the new buyer.
Finally, you go to closing. The buyer brings $120,000. The title company gives $110,000 to the seller, and $10,000 to you.
This is a really simplistic view, but hopefully it helps to describe the process.
Barry, thank you so much for taking the time to provide this detailed explanation. It is extremely helpful. I just borrowed a book from the library called real estate wholesaling Bible, I’m finding it helpful, if anyone else has suggestions for resources I’d love to hear them. Thank you again I hope to be connecting with you more.