I often get questions from aspiring wholesalers about the steps involved in an REO wholesale flip.
In today’s article, I’ll walk you through one of my most recent deals from beginning to end..
While checking the MLS about a month ago, I noticed a property that just hit the market. It was located in an area that I have done quite a bit of business in, and have several buyers looking for deals in..
Wholesaling REO Property Success: Case Study
The property was listed as a 2/1, and was priced at $11,000, which is a phenomenal price for this area. I recently sold a similar property in the same neighborhood for $25,000 so I knew this was priced right, and was out the door to look at it within minutes of seeing the listing.
Once I got to the property, I was pleasantly surprised. Aside from the fact that the house smelled like a curry factory, it was in great shape. It also had 3 bedrooms instead of two, which was just icing on the cake.
I rushed home to write up an offer, and had it submitted within the hour. I made the offer directly to the listing agent, allowing her to make both sides of the commission, as well as the $3,000 selling agent bonus that was being offered.
While I was at the property, there were at least four other investors there looking, so I knew my offer had to be competitive. Knowing that I could easily wholesale this property to one of my investors for around $25,000, I made my initial offer for $16,000.
The following day, I got a call from the listing agent asking me for my highest and best offer. She let me know that my offer was going to have to be over $20,000 if I wanted the property (agents do this sometimes, especially when they are getting both sides of the commission, plus a $3,000 bonus).
I had already spoken to two of my wholesale buyers and asked them what they would be willing to pay for a property similar to the one I had offered on. Both investors told me they would have to be in the $25,000-$30,000 range. I ended up offering $21,000, all cash, with no inspection contingency.
I got a call from the listing agent the following day, letting me know that the bank was taking my offer. They had 21 other offers on the table, one of which was for 11k more than I was offering, but it included a financing contingency.
I immediately called up my wholesale buyers that I had spoken to the day before and gave them the property address with a price tag of $29,000.
I ended up getting a cash offer of $26,000 from one of my investors two days later.
We did a simultaneous closing at my title company 30 days later, and I walked out with a check for $4,398.24.
Not a huge payday, but considering I only had a few hours of work in the deal, I was pleased as punch!
Article Author:
Stephani DavisStephani has written 15 articles for us.
Visit Stephani's Website: http://www.flipthiswholesaler.net/
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{ 12 comments… read them below or add one }
Thanks Stephanie, very interesting article. Sounds as if you use a method similar to the inverse purchase system. I have been a little wary of this system because I was not sure how I would be protected from lawsuit later, with anyone claiming that I acted as a realtor without licensing.
Rodney Dawkins
Hi:
Thank you for sharing. I have a question, how come your buyers don’t go and buy themselves and instead they buy from you by knowing they can buy at a lower price?
Thank you,
Rodney,
You can market a property if you have an equitable interest in it- make sure to have it under contract or option and you should be fine. If you’re still concerned about it, you can always get licensed..
Figgy,
Most of my buyers either don’t have the time to go after properties on the MLS, or if they do, they aren’t fast enough to get the good deals. So they come to me instead.
Steph
Good stuff Steph. Always a pleasure to read your articles.
Hey Steph:
This is a cool deal – thanks for sharing the case study. I wonder what really made your offer stand out among the other 20 offers and win out? Did you have an existing relationship with the listing agent? Did you offer a fast closing? You did mention you made a cash offer.
Did you have to submit a bank statement for proof of funds? And how did you handle earnest money deposits between you and your investor buyer?
Cheers,
Thomas
Thomas Bartke´s last blog ..Short Sale Commission Squeeze
Hi Thomas,
My offer was all cash, close in a few days (5, I think), 2k deposit, and I was giving both sides of the commission to the agent plus the selling agent bonus.
Yes, if you are making a cash offer, you have to submit proof of funds. I use a statement from a line of credit.
I gave the bank a 2k earnest money deposit, and then I had my buyer give me a 2k deposit once we signed the contracts.
Steph
Stephani Davis´s last blog ..Simultaneous Closings and REOs- Saturday Night Reader Mail
Have you *always* had a buyer committed before your contingency period is up, or before it came time to close? If not, how did you handle it? I worry that, especially as a beginner, if I don’t have a buyer lined up it would make sense to pull out of the deal, but that then my reputation would be damaged.
Eric´s last blog ..3 Secrets to Reading Housing data for the Real Estate Investor, Part 1: Understanding Seasonally-Adjusted Data
Hi Eric,
I usually don’t put anything under contract unless I am 99.999999% sure I can sell it.
My recommendation is to take some time to learn your market before you start making offers, and I would also line up some active cash buyers and find out EXACTLY what they are looking for.
Doing this takes time, but it will take the guess work out of making offers.
HTH,
Steph
Stephani Davis´s last blog ..Battle of the REI Blogs. I Need Backup (and Your Votes!)
Thanks for this article. i’m ready to try my hand at wholesaling. ive been researching real estate investing for a few months. I’ve finally decided to jump into wholesaling. Can you recommend a book or website that can give me every aspect of wholesaling. I understand the research and knowing market and good deal part.Have a cash buyer in my area looking for deals and I know what he’s looking for.But i need to understand how to get a contract written with/without contigencies. Do i need to etablish relationship with a title company? Any info you provide is greatly appreciated.
Hi Tamarra,
I recommend Steve Cook’s wholesaling course. Google it and you should be able to find it. He pretty much covers everything from A-Z. It sounds like you already have a pretty good understanding of how it works, though.
If you’re going after REOs, you’ll have to use a specific contract that the listing agent (or buyer’s agent) can provide you with. Here’s an article I wrote that explains a little more about making offers on REOs…
http://www.biggerpockets.com/renewsblog/2009/08/13/ways-reo-offers-irresistible-bank/
As far as finding a good title company to work with, my advice is to seek out the active wholesalers in your area and find out who they are using..
Hope that helps,
Steph
Stephani Davis´s last blog ..Proof of Funds Letters and REOs- Sunday Night Reader Mail
Steph, I like your 99.9999999999% answer. No one likes to discuss that part. You must become an expert an have qualified cash buyers. Seems youre in a low price point market, that doesnt work as well out here on the west coast.
Hi Steph,
I found your article really a helpful and you clearly explain the methods step by step. I am going to follow all your articles. Thanks for the post.