Wholesaling "Flip" - First Deal
I'm hoping one or more of you can help me with a few questions I have regarding a deal I've just put together.
I just put a house under contract today that I'm planning on assigning to another investor. This is my first deal, so I want to make sure I do everything right. I've been studying Ron LeGrand, and a couple of other courses, as well as reading up on various topics here. My first question is do I set up the title company and closing now before I've accepted an offer for the property? I've done the lien search and judgement search online through Knowx database, and also have a copy of the deed. So does the title company even need to do that for me now?
Also, I know I need to set up an escrow account with the title company, I'm just not sure if I do this before I've assigned the contract or after? The owner of the home does not have homeowners insurance, and does not want to invest in it just for the deal - he just wants out. I ok'd it anyway, and we signed the deal. Have I set myself up for either an added expense or a legal problem?
I've also read conflicting things on this site about whether or not to be at the closing myself - is there really a better way?
The assignment contract I have has a clear blank for assignment fee - how do I keep my end of the profit private from my assignor until closing? I don't want to scare them away before we even get to closing. Reason for this is I have a fabulous deal - I have an extremely motivated seller who just wanted out of the house to start his life over somewhere else, so I got the deal for under $10,000 - the tax assessment is for mid $20's - and the FMV is about $50,000 - repairs are about $5K. If I were to sell this property for let's say $20K that would be a good profit for me, and an even better profit for my buyer. How do I get past the guilt of asking for a $10K profit? Better yet, what's the best way to structure the deal so everyone feels like they came out a winner?
I know these are a lot of questions, but as I said I want to make sure I do this right - and legally.
Any advice would be appreciated.
Thanks,
Susan
I disagree with quikness about the price to sell it for. No investor I know would buy a property that has an ARV of $50,000 for $35,000. After repairs, holding costs and other expenses the profit would not be worth it. To what I have read, to keep your profit a secret from your investor you would have to do a double closing.
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Quikness,
The assumption that, if you price it too low, the investor will think there is something wrong with it and not buy it, only works for someone who relies on guess work to understand the value of the property. That is not a very good assumption. Most investors will know the value of the property, and wil act accordingly.
Thank you all for your advice. I think I'll stick with my listing price of $20,000 - because I want to offer the retailer the best end of the profit.
All that aside, does anyone have any answers for me on the real questions in my post?
Thanks,
Susan
If you want to make an extra $10k for yourself without the investor knowing, then get financing buy the property and sell it to the investor, all this can take place in a matter of minutes. Get a title co that will allow you to do a double closing. If you are going to use the assignment form then $5k would be a good fee to charge. Assuming that you have a signed contract, I would suggets you open escrow with a title co and give yourself enough time for the closing to find your buyer. my .02 cents
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I would agree with Patrece. Part of your wholesale fee is providing service. You want to make it as easy for your buyer as possible. If your buyer doesn't want to use your title company, then his title company can buy the title from yours. It is still a benefit for you to start the title work, and by doing that, all your buyer needs to do is to secure the funds and come to the table.
With regard to the assignment, I charge between 3K and 7K for an assignment fee, depending on the deal. If it is really sweet, then I will charge more. I generally do straight assignments. My buyers know up front what I am making on the deal. I also buy from wholesalers, and as a buyer, I want and hope my wholesalers make a profit. All you need to do is to make sure there is enough in it for them, and they should not mind. If they do, then you will want a different buyer. Why would you want to do business with someone who doesn't want you to succeed as well?
Thank you for your response Patrece!
So if I want to do a double closing, I have to have the financing already? I can't just go to the closing and pay my seller from the profit I receive my investor?
Just want to be clear on this before I set it up.
bnorton - Thanks to you as well for the advice! I really don't know what I'd do if I haven't found this website - it is just incredible the wonderful advice and networking it provides!
Your point is well taken about the assignment fee.
Regarding the possibility of my end-buyer wanting to use their own title company instead of mine, what if any charges will I personally receive from my title company should that be the case? Or will they take that out of my profit? Also in your experience to I pay up front for the title search? I ask because I have absolutely no money to put into this deal to start with. I just have the deal - signed contract. I need to get this started today. I have calls coming in already, and I've just listed the property on a couple of free sites. If you are interested yourself, please email me or pm me. I hope it's alright to say that. I don't want to offend the forum moderators.
Thanks again!
Susan,
The title company is paid either by the other title company when they buy the abstract, or by the buyer when he goes to settlement. You should not have to pay any up front fees to the title company.
Thanks again - exactly what I wanted/needed to hear!
Have a great day!
Susan, remember you have to take title to the property b4 you can sell it. Find a hard money lender, family or friend that can finance the $10k for you and then wholesale it to your buyer. If not do what bnorton says and assign it for $7k, not bad for a couple hrs of work. Glad to have helped.
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Patrece is right!!! I miss understood what you were saying. I thought you were putting the house on the market for a buyer at $20K. I didn't know you were trying to flip it to an investor. I guess I would have known that if I could read English!!!
Anyway you do it, you'll come out a winner. Just sell that house!!!!
Good luck to you!
Now, let's go get this money!
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Susan,
Sorry, maybe I misunderstood something but if you got it for less than $10k and repairs are $5k than why not hire a contractor to rehab it and put it on the market at the full FMV of $50k??
And I don't understand your comment about guilt - don't you want to make as much as possible?
Mark - Yes, absolutely I could do that with rehabbing it and selling afterwards, but I would have to have the money to do so - which I don't unfortunately.
I know you don't understand about my issue with guilt on making $10,000 profit - it's my own issue, which I'm sure I will get over very quickly when I receive a check in my hand. It just seems like money almost too easily made - if that's possible. Don't worry I'll get over it!
Thanks for your input!
With this deal, you can get the funding to rehab, if you want to take on the work and risk of it taking a while to sell.
Assuming you want to 'flip' it:
I appreciate the 'guilt' you feel on making a good profit, but look at it from the seller's and your buyer's side.
- The seller is getting out of a house they can't afford and would probably lose to the bank.
- Your buyer is getting a 50K house for 20K, and is looking at a 15K profit, on a 35K investment (20K to buy, 5K in repairs, 10K holding/closing)
So, you save the seller's @$$, make 10K, and offer a rehabber a 40+% profit. That sounds like a good deal for everyone.
Also, you don't need to buy it yourself. Just find a rehabber and show them the house. Have comps showing the 50K, and they'll jump at it at 20K. Assign them the contract showing your fee. If they balk, let them walk away. They won't, it's a great deal for them. They close, you get paid.
Good luck
Peter
:-? Does anyone have a formula to calculate the MAO (most allowable offer) when selling property wholesale?