Wholesaling a foreclosure?

[Wesly Peterson]

What are the big differences/obstacles of wholesaling a foreclosed home vs. one that a private owner still has power over? I mean in terms of dealing with a bank (I'm assuming) vs. dealing with a homeowner? Is the process still fundamentally the same or is there a drastically different approach?

[Craig P.]

To William's point wholesaling REO properties has become more difficult than it used to be; however you still can wholesale REO properties. Banks won't allow assignments thus you have to work them via 2 main strategies.

1. Double close (check for deed restrictions). Many REO deals now have 90 day deed restrictions that prevent you from reselling within 90 days and/or for more than 20% than what you paid. For example if you had it under contract for $100k; there could be a deed restriction that would prevent you from reselling within 90 days for more than $120k. Typically you won't make a 20% spread on a REO deal because chances are you aren't able to buy it deep enough to warrant a spread that exceeds the 20% limit so I don't really view this as a huge challenge. If you work within these restrictions you can double close or simultaneous close the deal to another buyer; which means you may need to actually fund the purchase on your side before you immediately resell it. You can do this via Flash Cash...you should research HML's in your area as many have Flash Cash (or same day money) options. There are strategies around the funding piece but I'll leave that out for now.

2. LLC sale. When making an offer put the offer in a new LLC that you create, IE 123 Main, LLC. You'll need to create the LLC via your sec of state. You can then wholesale the property by having your new buyer execute a SALE OF LLC INTEREST AGREEMENT. Your new buyer essentially becomes the owner of the LLC that the purchase agreement is in place on the REO deal; thus they will step in and fund and close on the deal as the owners of 123 Main, LLC etc.. The amount the buyer agrees to pay for the LLC is your wholesale fee. Many times this fee will be paid to you outside of closing.

On the topic of wholesaling a private home the easiest strategy is to make the purchase agreement assignable and then have your wholesale buyer execute an assignment contract. When you do this your wholesale buyer typically will know exactly what you are making as they will be exposed to the amount you have it under contract for. We spell it out exactly in the assignment contract as well...so if you have concerns that the amount you are making could cause major heartburn with the buyer, you can get around this by double closing it. I typically don't worry if the buyer thinks we are making too large of a spread because I'll just take the deal to someone else if they make a big deal about it.

There is much more to all of this but I am trying to stay high level and not get too in the weeds.