All Forum Posts by: Phil Pustejovsky

A Seller Side Only Closing Statement and a separate Buyer Side Only Closing Statement, or what I call a "Blind HUD" is not a matter of legality.

When the new buyer is getting a loan however, in most cases, the underwriters for that lender will almost never allow a Blind HUD closing. Also, if the seller and the buyer have separate closing attorneys, sometimes one or both will demand to see the other side's expenses.

But, if the new buyer is paying all cash and there aren't a bunch of attorneys involved in the closing, having a Seller Side Only HUD and a Buyer Side Only HUD can be done if you are working with a knowledgeable, investor friendly closing company.

The beauty of the Blind HUD closing is that the seller doesn't see the assignment fee you're making, which can be very helpful, as in the time I was threatened to be shot and killed if the seller ever found out where I lived once he found out from the Prelim HUD what my assignment fee was on the deal. Good thing he never found out my personal residence!

But, keep in mind that with a Blind HUD closing, the new investor buyer you are assigning your deal to will know how much you are making.

If you don't want either party to know how much you are making, the tried and true way to solve that issue is to do two separate closings.

Review your deal finding plan. Can others easily copy it? The best way to avoid competition is to have deal sourcing techniques in place that no one else knows or can duplicate and never share them with anyone, ever. The good news is that your contractor and his bank partner will probably be sourcing their deals from the MLS, from other banks REO inventory, from wholesalers...in other words, the same places everyone else does. And that's where all the competition is. And the winners in that realm are the people with the most money willing to pay the most per property and therefore accept the least profit. No thanks! You can choose not to join that dog fight. You can choose to take the road less traveled and it will make all the difference.

You can check the reviews of that list from many different providers and you may find another story line as well. Many loan modification companies marketed to this list to the point where the FTC cracked down on them and in the process, forbid the credit bureaus from selling that list anymore. So if someone is selling that list, it may not be that list at all. The true mortgage lates list came from the credit bureaus and the FTC has put a stop to that thanks to the thugs in the loan mod biz.

If you wiki psychological pricing, you'll discover what retailers use and why. That may help you too. Some real estate pundits swear by 7 rather than 9. I have tested several approaches and haven't found that 7vs 9 or round versus exact numbers work better. However, price does matter...it needs to be the amount you'd be willing to sell for. Don't start high and drop.  A high days on market is the kiss of death for a listing. Start low and sell fast.

I wouldn't do a creative financing deal on this one. Just offer a super low ball offer and pay cash.

Why do you want to buy? It may be cheaper to rent. Especially with condos, it's usually a better deal to rent a home and then use the money you would have been sinking into your primary residence into investing in real estate that you don't live in.

ESPECIALLY if you plan to live in the property for less than 5 years.  

I have a very detailed video explaining why it's usually a better deal to rent. Go to YouTube and type "Should You Rent or Own Your Own Home"

Be VERY pessimistic in your analysis of what the property will eventually sell for once renovated. It's the single biggest mistake investors make when evaluating a deal to close on, renovate and resell. It's good to be optimistic on the overall view of the business of investing in real estate, but it can be financially destructive to be optimistic when estimating what a property will sell for once you have renovated it. Also, study all the comps, active and closed. If there are a ton of other listings in that area, you will not only have to compete with some of those that haven't sold by the time you put yours on the market, but others will appear after you begin rehabbing too that aren't there yet. If a wholesaler says it will sell for $179,000, (although your very, very, very detailed comps analysis will provide the true picture), as a rule of thumb, reduce that by 10%, so it may sell for $160,000 in the real world.

As for you renovation costs, it usually ends up costing 10%-20% more than your very best estimate. And the more extensive, (which this one sounds intensive), the more likely it will be on the 20% end rather than the 10% end. There's an old saying in the contractor business, the bigger the project, the more money you can lose. For investors, that same principal holds true. The larger the renovation project, the more problems could come up. So you want an even bigger margin of safety on this one. Spreadsheets may help get a general picture, but in the real world, experience teaches you to round up...

Maybe you can talk the wholesaler down to $80,000.

Plus purchase closing costs, insurance, etc. ($3,000)

$60,000 in renovations and holding costs

So you'd be in it $143,000

If it sells for $160,000, after real estate commissions, this deal may earn $10,000 and that's if everything goes right.

So you have no margin of safety either. Ouch!

Looks thin to me...but that's how it usually is with deals sourced from most wholesalers. Thin.

Depends.

When someone applies to be an apprentice, I have a very thorough qualification process because my team and I have to be very careful who we make the commitment to mentor. Many years of experience has taught me that you have to be very selective. 

Usually we choose wisely and it is a fun and rewarding experience to transform someone into a creative real estate investing market leader.

The ones that we determine are not going to be a good fit, we respectfully decline their application. Some of the ones we turn down get really upset. But the reality is that my team and I are small and can't possibly mentor everyone who asks us to. Nor would we. The fact is, there are far more people who want to be real estate investors than there are good investing opportunities to feed them all in this business.

Thankfully, I am not a guru :) I'm first and foremost a full time real estate investor, and secondly, I mentor and split profits with the apprentices I teach. Myself personally and my apprentices have done these types of deals all across the United States. Over the past decade, a few complaints have been filed with the real estate commissions of a few states and in each situation, we proved legally that we were within the bounds of the law and there was no punishment. So we have been in the trenches of commission investigations and won. Flipping to a retail buyer before becoming the owner of record is much more profitable and productive than how most investors do it but it is not for the beginner. Every detail has to be perfect. For most people, its better to stick to the traditional approach of buying, becoming the owner of record, perhaps renovating and then selling to a retail buyer. And good luck finding attorneys who really know what the heck they are talking about when it comes to this subject. This is very, very specialized. There is very little case law to support it but the case law does exist if the legal researcher really digs deep. It took us years to get it all dialed in.

DISCLAIMER: The following is NOT legal advice. Consult an attorney if you have legal questions.

With the disclaimer out of the way...

(1) Make sure your contract clearly communicates that the buyer is obtaining equitable interest and may market the property on the MLS by representing its own interests and not those of the owner of record.

(2) Make sure it is clear in the listing remarks that you are representing your own equitable interest and NOT the interests of the owner of record.

(3) Once the buyer makes you an offer, you then have to decide who is going to counter sign that contract...the original seller or you? Or do you assign your original agreement? Those are the three options and each deal is different and the best choice depends on the particulars of the deal. It can get a bit complicated here.My team and I spend considerable time helping our Apprentices decide the best course of action once the offer comes in.

If you do this technique wrong, at worst, you can get into big trouble with the real estate commission (and perhaps invite lawsuits from sellers and agents as well) and at best, you will get cut out of the deal and basically help the seller make a ton more money. 

If you do it right, it can be MUCH more profitable than traditional wholesaling and it reduces the risks of closing on it the traditional way and then re-selling. My apprentices and I have made a fortune applying this technique across the country.