Wholesaling Real estate

[bjard855]

I want to get into Whole deals. But I have a question. I have been trying to research but of course most places on the web you can only get so far then they won't give you all the info. So my question is this... Once you have located a property and agreed to purchase then found a rehabber to sell to and negotiated a price how do you get your profit. The original contract with the home owner would have the price agreed on between you and the home owner so where would you get the final negotiated price with rehabber as you would not alter the original contract and rehabber will not pay the homeowner. Are they just agreeing to pay you a fee or percentage above and beyond the contract? Is that understood in this deal? This is the last aspect of Wholesaling that I haven't quite figured out. Can anyone help? Thanks.

[freedom.project]

When I do my whole sale deals, I follow a simple formula for the price of the property.

What is the After-Repair Value (ARV) -$___________________

Subtract Repairs -$___________________

Subtract profit for the investor -$___________________
If ARV is under 80k,
subtract 15k
If ARV is over $80k,
subtract 20% of the ARV

Subtract at least $5k for you -$___________________
(or whatever your profit is)

Equals the most you would offer =$___________________
(TOTAL)

You get your profit from the assignment of the contract to the rehabber. The usually have ways to purchase the house with cash.

I hoped this helped.

Steven A. Ruddell

[BusinessAdviser]

I would add that when you're subtracting repairs, multiply your the amount of your anticipated repairs by a good 20% to arrive at the value used for the calculation. Anyone else think this is a good idea?

[freedom.project]

Just curious, why would you want to to that?

[BusinessAdviser]

Why? Because quite often our expected repair costs turn out to be on the low end. And the result is losing money on a deal. You really don't tack on a cushion to your estimated cost? What does everyone else think?

I would much rather take my expected costs and tack on 20% for any unexpected costs in trying to determine whether a deal will work, and end up turning down a deal that I could have made money on than failing to do so and end up losing money.

[freedom.project]

I thought that was why you wanted to add the 20%.

One of the ways to avoid doing that is get your estimates from a professional contractor. This is also a good way to network as he might be able to introduce you to a few re-habbers.

[BusinessAdviser]

Look, in business, be it rehabbing houses or running GE, you have unexpected expenses. There's no getting around it. Plan for them. After planning for them, the worst thing that can happen is that you were wrong, did not actually incur all of them, and you have greater-than-expected profitability. On the flip side, you can fail to plan for them, and end up losing money as a result. You decide. Professional contractor or not, there is no way to completely eliminate the risk of unexpected expenses. THAT is why you want to give yourself a buffer.

Does anyone else think that adding a buffer to your expected expenses is a good idea when determining the viability of a project?

[bjard855]

Thanks, I just wanted to know where I get my profit out of it. Is it written into the contract? I haven't done any of these yet and want to do risk free deal so no flipping yet. But I just haven't been able to quite grasp how you get your profit from the investor over the price you agreed on in the contract with the homeowner.

[BusinessAdviser]

Where do you get your profit?

Here is a simplified explanation:

You buy a house for A dollars. You spend B dollars rehabbing it. Upon completion, you sell it for C dollars. Your profit is C-(A+B), or the difference between the sale price and the total amount of money you spent on it.

Does this help? Or am I misunderstanding your question?

[ltressel]

Where do you get your profit?

Here is a simplified explanation:

You buy a house for A dollars. You spend B dollars rehabbing it. Upon completion, you sell it for C dollars. Your profit is C-(A+B), or the difference between the sale price and the total amount of money you spent on it.

Does this help? Or am I misunderstanding your question?

Okay, okay....I'm jumping in. Traditionally, Jmenq2, that's what real RE investors do. We buy it, we rehab it, and upon completion, sell it. That's what I do. Our fellow here, has watched quite a bit of guru late night shows.

This style is one of the "no money" down theories floating around out there. What the OP wants to do is tie up the property in his name but just before anything closes he's lining up his Flipper investor so he doesn't have to fork out anything but somehow get paid in the process. In a way, he's trying to be an unlicensed realtor, a deal finder, or a middleman.

OP: here's my suggestion. Don't do a double close. It's actually a no-no in real estate. If you really want to be seasoned and good at this, follow the yellow brick road. Get your credit polished, get a bank that finances rehab loans, and you'll be surprise that there are still banks out there that still loan 80% or a rehabilitation. Going through one rehab project will be 100 times better than buying no money down programs as seen on TV

Trying this little magic tricks don't really work. You'll be blind reading into these get rich schemes and realize 5 years later, you still haven't gotten 1 house to your name as an investment.

If you need some help or pointers, I'll be happy to answer some of your RE questions. I've rehabbed almost 30 homes.

LT

PS I have never once used a bird dog or a "wholesaler." I find my stuff, do my math, have my crew from beginning to end.

[bjard855]

I know I haven't responded here in a while. But in your rehabbing projects does the slow market scare you from buying. THis is a GREAT time to buy. Just not to unload the properties. Does that ever prevent you from buying?

[EMC-NJ]

I'm a new home builder, an occaisional flipper & landlord. I'm also a licensed R/E agent, just to knock out another middlemam & even more B.S.

I'm very hands on, the first House I built, I built with my own two hands, it was a two story colonial. I do plumbing, electric, carpentry, masonry, etc... So I know more than the average guy in r/e.

There are always over runs, even when you think you know all the angles. Even getting quotes from "professionals", you'll get the lowest price from somebody, just so he can get his foot in your door, then he will try to nickle, dime & bleed you.

Build & guard your credit & establish a relationship with a smaller local back. The smaller local banks I find to be easy going & flexible.

[DPayne]

The only way wholesale deals are going to work for you is if the end buyer (rehabber) can buy your assignment of contract with Cash, Private money, or some hardmoney lenders. Many seasoning requirements have been attached to new mortgages to prevent mortgage fraud and double closings. For Example, FHA backed loans require the title to stay in each person's hands at least 90 days before it can change hands again. This makes some wholesaling difficult. Plus when a lender does title work and it shows the investor buying the property from you but the title has the sellers name on it, it throws red flags everywhere.

Don't even think about doing these "subject-to" deals. This is where you buy the house "subject to" existing financing. Meaning you take over the previous owners payments. When the title changes hands most mortgages have a "due on sale" clause. If you don't pay the remaining balance of the mortgage when the house changes hands, you just committed mortgage fraud. As soon as insurance is filed on your name, red flags go all over the place and the mortgage company has the right to demand the mortgage balance in full.

Basically, Know your laws in real estate. Its not as easy as selling cars or something. It's a paper game, and if you mess up, you can get in deep sh**.