All Forum Posts by: Mitchell Rusten

I’ve come across an interesting opportunity and I’m wondering how best to handle it.

I’m looking at a 5 bed 2 bath split level home that’s currently separated as an up and down duplex listed for $400,000. What’s interesting about this home is it sits on the far left end of a 3 acre lot, and the entrance to the property travels directly through an area of a new development with about 30 homes selling for $500-600k. The right ~2.3 acres should be able to fit a cul-de-sac and 4-6 lots for new homes to be built, with about ~0.7 acres left with the duplex sitting on it. The listing agent even makes mention of a potential lot split/subdivision in his listing. Comps in the area tell me the duplex on 0.7 acres should be able to appraise for at least $300k. Assuming I can get the numbers to work, my goal would be to sell the extra land and refinance the duplex to keep as a rental while walking away with cash in hand.

With all that said, what is the best method of determining what a builder would pay for this plot of land, and what process do I need to go through with the city to make sure it’s zoned accordingly and will fit this plan? I’m hoping to do my initial due diligence in the next couple days and have the contract locked in by the middle of the week if the concept is feasible.

@Tyler Austin

Get the contract. If you have a contract on a property where the numbers work, you’ll have no trouble finding a buyer, especially in this market. On a good deal nobody will be trying to go around your back or wait out option periods because they know they will just lose out to someone else. If you have the contract recorded, typically the seller won’t have much option to get out (nor will they really care to) and you’ll be able to go ahead with the deal.

@Jingru Sui on the podcast I heard about an interesting strategy where a guy would go on rentometer for his initial estimates, then look up some rental comps in the area and post a pseudo-listing on Craigslist’s or similar marketplace and see how much activity he gets. It’ll give a pretty good idea of what the market demand is like for the type of property you want to list.

@Michael Ealy I’m pretty new to this whole RE thing, so take what I say with a grain of salt, but from a business standpoint it looks like you have a great opportunity to scale. You appear to be very good at the acquisition portion of real estate. It’s fantastic that you are top of mind for so many people and they’re just throwing deals at you. Find a way to bring in more people to execute on things like rehabs, PM etc. and keep doing what you do best. I’m sure there’s plenty of competent people in your market who would LOVE to work with you.

@Lydia T.

Thank you Lydia!

Certainly. It would be wrong from a moral standpoint and, by my understanding, probably incorrect from a legal standpoint to try and mislead the seller in any way. I am interested in being in real estate for the long haul, and the quickest way to jeopardize that would be to practice in an illegal or unethical manner.

From my novice understanding, and please correct me if I am wrong, this is covered by an inspection period and often wholesalers will include a clause in their contract regarding a financing contingency. From what I understand, if you do your due diligence prior to signing a contract, you will have a deal in place that has enough meat left on the bone to interest you list of buyers. If done properly, I shouldn't have to back out of a deal in the event you can't find a buyer. I am not interested in signing a deal I don't wholeheartedly believe I can close on one way or the other, because it will create a headache for me and the seller, who I am trying to help out of a bad situation. 

All of the above being said, I understand bad and unforeseen things happen and it isn't far from a certainty that I will do something wrong early in my career. My intent is to have language in a contract that protects me from having to close on a deal that I have not been able to make profitable. It would be a last resort, but available if necessary. 

 Thank you for your response. Do you mind going into further detail about what you are talking about here and roughly what the costs would be? From the sound of this you are talking about a double-close in which I momentarily take ownership of the property and would either have to get a transaction lender or set up two escrows and have the buyer fund the escrow for my end, in which I would lose out on the closing costs of the first deal, correct?

I am looking at getting started in the exciting world of real estate, and after exploring many of the pros and cons I think wholesaling would be a good place to start. One of the questions I have had a hard time finding answers to, however, is exactly what costs I can expect to have when closing a wholesale deal. The only real cost I can anticipate at this moment is ernest money in the $100-1000 range, although I know I should get this back after the deal closes. The ones I can't put my finger on are things like appraisal fees, contractor quotes, anything I might have to pay a title company for an assignment deal (if anything), and how much I should expect to pay on a double-close deal. Do you guys pay for an appraisal/inspection, or do you have buyer's handle it as part of their due diligence? If you cover it yourself, do you tack it on to your asking price? Also, do you have to pay a contractor(s) for a quote, or are they typically willing to do it for free? Also, if you can think of any other non-marketing costs I should expect, please let me know!

Bonus question: any tips for choosing a suitable title company? 

Thanks for the help!

TLDR: How much capital should I have set aside to help me get through closing a wholesale deal?

@Chinmay J. Wholesaling is legal almost everywhere so long as you’re transparent. My lawyer told me here in ND as long as you market the contract and not the property itself, you’re free and clear.