Can you get a property under contract (that you will eventually wholesale) from a seller without engaging in a "subject to" transaction if the seller still has a mortage on the house? Here I am assuming the seller has lots of equity and has a relatively small mortage. As a beginner I want to try and stay away from "subject to" transactions at least for the first few deals until I get comfortable.
Does the language in the purchase and sale agreement need to be different in case the seller has a mortgage? If so, what would be the needed language?
you just have to offer enough so that it pays off the mortgages..not saying these deals are impossible to find, but they are few and far between...most leads that call you will be overleveraged and underwater (shortsale situations)...there will be some where you will have to be creative, as in sub2, owner finance, etc...then finally, there will be a few hopefully that don't owe a lot, but have a ton of equity, and don't want the hassle of fixing up the property to cash in on the equity, or listing with a realtor...again, it will take a lot of leads to find this unique seller..good luck!
Lets say your ARV is 190-200K, the mortgage is only 40K, and you get the house under contract for 130K (which you later sell for $140K and make the 10K profit) --
When does the 40K get paid - as part of the closing process? Does the closing agent automatically contact the lender and give them the 40K and give the remainder of the $140K to the original seller? Does their have to be special language about this in the purchase/sale agreement and assignment contracts for this?
Sorry im not too famiilar with real estate transations and the closing process. Thanks again.
The $40k doesn't get paid off if you are selling the contract as a "subject-to" contract. I have a special 4-page contract that I use with the proper language.
I agree with Bryan that these types of transactions generally don't have enough room to pay a wholesaler.
Lets say this is not a "subject to" deal. Would the seller just agree that the mortage would be paid out of their proceeds of $140K?
Im just trying to figure out a situation where wholesaling would work. So really does wholesaling only work well when there is no mortgage the property?
somebody has to pay the 140k...if you're not paying it, then you need to find a buyer that will...their 140k will be applied first to liens on the property...so yes, the 40k mortgage will be paid at settlement...the closing attorney or title company that handles the closing will call the bank for an official payoff quote..
Wholesaling works whether or not there is a mortgage on the property. All it really means is that you are selling the contract you ink....that's it. You aren't selling for $140k above....you are selling the contract for $10k. There are many ways to structure things, but I think using this line of reasoning will keep from confusing you.
In your deal the $40k mortgage will remain on the property and the remaining $90k in "equity" (net sale proceeds) will need to either:
1. Get paid at closing
2. Get paid over time according to how the deal is put together
You mention the ARV is $190kish...how much are the repairs?
I am sure you may get better help in structuring the deal and options to present to the seller if you start with the basics. What is the seller's motivation? How much is it worth now? How much are the repairs? Is it current? What is the interest rate, amortization period, etc. on the note?
I reread the original post...my responses were assuming you were TRYING to use a subject-to purchase. Look at the other Bryan's responses for the answer to your original questions. I guess I need to pay more attention to the OP and not watch TV while I am trying to respond ;-)
The easiest way to explain is: yes the title company will contact the sellers lender for payoff. At, or just after closing they will wire all of the money needed to payoff the sellers mortgage.
Their job is to provide clear title to the end buyer and provide him with title insurance. So they will also make sure that your seller pays off any other liens on the property from the proceeds of the sale.
As far as how you get paid, use an assignment addendum. Its an addendum to the purchase and sale contract that transfers liability to the end buyer. We currently collect a 2k non refundable deposit (held at title company) when the addendum gets signed, and as long as the end buyer performs, the entire assignment fee (along with the original non refundable deposit) is collected at closing.
You need to be dealing with end buyers who are either paying cash or using hard/private money loans.
I guess I need to pay more attention to the OP and not watch TV while I am trying to respond ;-)
I was wondering where you were trying to take the conversation :mrgreen:
I was going to post up for you to re-read the original post but I saw that noticed it already. Please tell me you weren't watching American Idol :roll:
Paras, why don't you just do an option and assign the option for a conventional sale or use a conventional sale contract and assign the contract for your fee?
And what makes you think wholesaling is the thing to do? You didn't say what the repairs were, but I'm thinking this is all hypothetical, so why not take a property like that and put it under an installment contract and list it for much more? Like 149K.
Thanks for all the insight everybody! Much appreciated.
This was just a hypothetical situation. Not sure which strategy would be the best for me, but wholesaling was the first strategy that I came upon in my learning. Want to definately learn other investing options
Whats the difference between wholesaling, doing an option and doing an installment contract? Is there more risk in doing an option or installment contract compared to wholesaling?