All Forum Posts by: David Weiss

Thank you everyone so far for your replies.

Matt Devincenzo,

1) You are correct that the proposed model sells the house to an owner/occupant. Your point about a judge's attitude towards this arrangement is well-taken. My prospective mentor's partner is an experienced RE attorney and I will investigate what measures are in place to help mitigate this risk before getting involved in this model.

2) I would remain in the middle of the arrangement and intend to set aside funds to deal with such situations. The possible mentor is also a hard money lender so access to funds will not be an issue. I will protect my clients; the only good business deal is one where both parties benefit.

I have a question for investors who are experienced in both "Subject To" and "Wraparound Mortgage" deals.

I have a guy who wants to mentor me in the following investing strategy:

- Put a house under contract for a 90 day option to purchase subject to.

- Find a buyer interested in an owner-financed deal.

- Purchase the house Sub2.

- Sell the house via a wrap.

Mr. Potential Mentor says that because you're offering owner financing you can typically boost the sale price 10% and the interest 2% (assuming the original owner had an average flat rate) and collect 10% down, creating an early payday plus pretty good passive income.

If you can't find a buyer within your option period you walk away, making the risks comparable to wholesaling. It's the buyer's house so there are no landlord headaches. If the buyer defaults you can foreclose, rehab and resell or return title to the original owner, with reselling being preferable both ethically and financially (carry the costs and sell the house twice, doubling the DP's and extending the passive).

There are obviously several legal considerations, but the potential mentor's partner is an experienced and highly regarded RE attorney so I feel comfortable there.

Lastly, the potential mentor doesn't want any payment up front. His compensation will come in the form of profit-sharing.

It sounds like a pretty sweet deal....

My question to those of you who are experienced with these forms of creative financing is this:

Assuming I can avoid buying bad properties and assuming the lawyer competently covers the legal bases, are there any risks to this strategy not captured above? Or does this mentor and his strategy seem like a pretty good deal for a newbie investor?

Thanks so much for your time, insights and advice.

I especially liked the Casino one. It made me LOL. :)

I don't get it. Why would the tax assessor's office lose their ability to exercise their judgment during an appeal based on who the last seller was?

I'm not looking for a discussion on whether or not such an argument holds much merit. I'm just trying to understand how the the one could even be connected to the other.

Welcome to my fellow Texan!

This is a remarkable web site. I can't say enough good things about it. Good luck on your new adventure!

Agreed. I believe we are on the same page after all.

Thank you for the clarification. I don't believe most wholesalers work with agents (if a wholesaler can get a deal without an agent, they eliminate the agent's commission from the pricing, significantly lowering the sale price and doing a lot to eliminate the problems with high pricing you mention) and that's why I wasn't "getting" your observations on reputation. Your point is well-taken that a wholesaler who works with agents would be at risk of a damaged reputation if they backed out of too many deals.

Good luck rebuilding your reputation, Kevin. I applaud your courage in sharing your history that others might learn from it. Thank you. Also thanks for the info on daisy-chaining.

Kevin Yoo, thank you for complimenting the quality of my writing.

The steps I listed did not come from a seminar. The only two seminars I've been to so far have been on Sub2 and how to valuate a house.

My steps came from research, most of it here on BP. :)

We may have to agree to disagree on the wisdom of canceling a contract for which no buyer can be found. To be sure, learning to properly valuate a property is key; we agree that no good comes from a wholesaler offering too much: the wholesaler won't be able to assign the contract, it locks out other investors and it delays the owner's ability to sell their problem property.

However, once a mistake has been made and a wholesaler realizes they offered too much, they only have three options: cancel the contract, default on the contract or buy the property.

I can't see how defaulting on the contract would be better than canceling. Neither can I see how going through with the sale no other investor thinks is a good idea would somehow be a good idea for the wholesaler.

Do that too many times, and one's reputation as a wholesaler is going to be the least of a wholesaler's problems.

Speaking of reputation, I'm not following your argument that a wholesaler will somehow develop a bad rap and sellers will stop contracting with them. By definition a wholesaler is mining the market to get deals for investors; I don't see how property owners would have insight into a wholesaler's history. Is it common for distressed sellers to visit their local REI clubs to research wholesalers' reps before signing contracts?

I could see how wholesalers might stop trying to assign contracts to an investor who had a habit of backing out at the last minute. I'm wondering if this is what you meant, since you reference your personal history and your title is investor rather than wholesaler.

Please correct any oversights in the above, that I and others may learn.

David

PS: We agree that the wholesaling approach includes finding serious buyers and working to find them deals. I don't believe I suggested anything different. I think the only place where we disagree is what a wholesaler should do if they realize they negotiated too high of a price.

Natasha Hylton and Cory Rogers, you're getting into wholesaling. I'm not sure I understand the initial hesitation to move forward without a mentor or partner, since you're at the low-risk end of things. Who cares if you screw up? You aren't buying the property. A wholesaling screw-up means a lost deal and little more.

Disclaimer: I'm a newbie. If an experienced investor sees a gap in what follows, please speak up! Otherwise, here is my understanding of the wholesaling side of investing:

1) Network until you've got a lot of potential buyers. Do this while learning everything you can about the business, especially how to valuate a property.

2) Get with a real estate attorney and have them provide you with a Purchase Agreement with very liberal contingencies to get you out of any deal that doesn't work. "Contingent upon business partner's agreement" for example (with your unnamed partner being whomever you might sell to).

3) Find a property, put it under contract with a very low Earnest Money deposit (I know one successful investor who never puts more than $10 into Earnest), and then market the contract to your buyers, REI clubs, etc.

4) If you can't find a buyer, cancel the contract before the contingency period expires.

Good mentors are important assets. If you can find one, great!

But if you have the right contingencies in your Purchase Agreement and understand how to use them, and never put more into Earnest than you can afford to lose, you won't need a mentor or partner to help you mitigate risk because there will be little risk to mitigate.

That's my take. Anyone see it different?

Steve E. and Harry M.: You mean BOTH tenants in a duplex have to pay rent??? ;)

How embarrassing. Note to Self: don't post comments when half-asleep.

Good luck to your friend.

So I'm getting a little sleepy here, but when I punch $130k with 20% DP and 4% interest into a mortgage calculator I'm seeing monthly payments of around $630 without insurance. After adding insurance, with a $750-$800 rent I don't see how your friend would be making any money with his $130k offer, let alone at the seller's $142k firm price.