June 16th - 3 very different deals that made me $25,000. Part 2

Getting started in real estate and as a wholesaler can be difficult when you are coming from little knowledge or little cash flow. As I have discussed challenges with investors that I meet, I decided to layout some of the specifics and details of my recent wholesale deals. Please let me know if you have questions or need some guidance to make a deal work.

After

Before

Deal #2

Salt Lake City, UT - Rose Park area.

This deal started as I noticed a realtor sign near some of the rental properties I manage. I could immediately tell that the home was vacant. I looked up the property and found that it was a Short Sale.

Let's do a short definition of a Short Sale.

The Seller of the home owes more on the financing than the home will currently sell for due to market drop in prices, or condition that prevents a full value sale.

When I spoke with the agent he let me know that they had been negotiating an offer with the bank, but that the buyer had become impatient and had cancelled their offer. They were in need of an offer that they could continue to work on getting approved with the bank.

I ran some numbers and I placed my offer to the bank in the name of a Trust. In this case I could have used a Trust or an LLC. My purpose is that I need to use a disposable entity, meaning that I don't hold any other assets by the same name. If I plan to wholesale, or assign, the contract prior to close i need to be able to do so without affecting any other assets. More on this later.

My offer was for $100,000. I also submitted a copy of my Trust Documents, and a letter of pre-approval for a Hard Money Loan from one of the lenders I work with.

I made the offer and pretty much forgot about it. Several weeks later I received a phone call from the Listing agent. He informed me that the bank had made a counter offer of $110,000. I welcomed the price and accepted immediately, only contingent on my due diligence period of 15 days, and closing in 40 days. This gave me time to make a more complete inspection of the property, and to market the property to Buyers that wanted to either hold or sell.

Here is the part that gave me trouble. Because I made the offer in the name of the Trust, the Buyer also has to close in the name of the Trust. If the plan is short term, "Fix and Flip" this isn't a very big deal. However, if the buyer wants to hold long term it is more challenging. This is because they need to be able to place the property into their personal name in order to obtain long term mortgage financing. Based on the numbers for this home, and the area where it is located, I thought that a rental was the best use. Only I made it much more difficult for myself to sell it as a rental due to the offer not being in the personal name of my end buyer, whom I did not have lined up ahead of time.

My original plan was to wholesale this opportunity to a landlord investor and mark up my price about $5,000. That did not happen. I did find a buyer, that was able to do much more work for less out of pocket expense by using their own employees rather than contracting all the work out. This made it work for a quick flip. The home was sold 3 months and 10 days later for $160,000.

I was able to coordinate an Assignment of Trustee without altering the name of the approved buyer with the bank. This allowed me to substitute the owner of the entity prior to closing and our Title Company was familiar with the process and approved of the transfer.

Due to the nature of this transfer, and keeping with guidelines for the bank and title company, I opted not to receive an assignment fee. Instead I was paid for my services of photographing the property on several occasions and for inspections of the property that I made. I billed this separately from my company and received a 1099 from the end Buyer. For my services I received $3000 total.

I have tried to keep this as basic as possible and highlight the specific areas of questions I receive from new investors. What questions do you have that will help you to feel comfortable to make your next offer on a Short Sale?