Great wholesale deal but little time, What do I do?

[Keith Saunders]

I'm a newbie wholesaler here in pittsburgh. I got 1 deal under my belt so far and looking for the next one. I found a guy ready to sell his house. Half the house is in OK shape the other half is a disaster, Severe water damage,rotted out floors, and you can see outside looking through the roof. I beleive the ARV to be $165K. Offered owner $32K which he accepted. Think it will take $65k to repair and $3k to close. The problem is the time line. He tells me today the bank will take the house back on July 7, 2012. I'm not sure I can find a buyer and close in that time. My usual game plan is to sign the contract for 60 to 90 days giving me time to find a buyer. I plan on marketing the house for $55K but will take anything above $42k.

What is my best option?

Wait for the bank to take it then do a short sale?

Sign the contract, then contact the bank to try to get an extension for 60 - 90 days?

Try to sell it for less profit maybe say $37K and market it for $42k?

or is there something else I can do here?

I don't have the money to buy the house if I can't find an end buyer to assign the contract to. So I have to find a buyer to make this deal viable. As time is short I would appreciate you response ASAP.

Thanks,

Keith Saunders

[Steve Babiak]

Originally posted by Keith Saunders:

...

STEVE: Yeh I found that out about the double transfer tax the hard way when I completed my first assignment deal. My title company never told me about it until the day of the closing. I ended up eating $3k in transfer taxes. Needless to say I found another title company for this and future deals.

...

I recently assisted somebody I know who had sold a property in PA for far below ARV - it was sold around 0.7 * ARV - repairs, like most investor purchase MAO formula purchases. The PA Dept of Revenue audited this sale - they were specifically seeking a bigger amount for the transfer taxes! Needed say $35K in repairs, ARV around $90K, so MAO would be $28K using MAO formula mentioned earlier; seller sold for less than that (closer to 0.65). But the Dept of Revenue wanted transfer taxes on like $90K! In this audit letter, the Dept of Revenue was looking for some specific items on this transaction, from all parties - seller, buyer, and title company.

Here is what they wanted (wording directly from the letter except where some privileged info is involved in the third item):
* A copy of the installment sales agreement or purchase contract for the property.
* A copy of any appraisal of the property that was completed within the last two years.
* The computed fair market value of the property was _____ & the grantee purchased it for _____ . Supply written documentation as to the difference. What, if any, is buyer's relationship to seller?

Now, the written explanation was good enough for this case, since there was no assignment of contract here. But these audits do happen, and these type of undervalue purchases are the most likely to trigger such an audit. An assignment of contract is certain to get the PA Dept of Revenue looking for their extra transfer taxes. So be sure that you are able to cover that even if you found a "friendly" title company - you might have to pay your "friend" in the end to cover the state's desire to collect transfer tax.