Today’s article is part four in a five part series, where I will be shedding light on the various methods available to close REO wholesale deals and get around the “No-Assignment” clause that most banks include in their addenda.
This week, I will be talking about using an LLC to wholesale your REO properties to your end buyer.
Using an LLC to Wholesale
If you decide to use this method to close your REO wholesale deals, you will be making your offer to the bank in the name of an LLC, creating the LLC if/when the bank accepts your offer, and then selling your membership/ownership in the LLC to your end buyer in exchange for your wholesale fee. When using this strategy, you are not selling the actual property to your end buyer, but rather the LLC which owns the contract to purchase the property.
When you form the LLC, you will want to have the Operating Agreement drawn up by an attorney who is familiar with what you are trying to accomplish. The Operating Agreement should define the management structure of the company, and allow for the transfer of management rights.
Once your end buyer is in place, you will need to execute a Memorandum of Management Rights Transfer (or something similar- consult with your attorney to find out what documents are necessary in your locale), with you named as the transferring member, and your end buyer named as the assuming member.
The consideration given for the execution of the transfer of management rights will be specified in the Memorandum, and will represent your wholesale fee. Once this exchange has taken place, your end buyer will proceed to closing with the Operating Agreement for the LLC along with the executed Memorandum, which will show that they are authorized to sign the closing documents and purchase the property.
The fees associated with setting up an LLC will vary depending on which state you are in, so this is something that you will want to take into consideration when deciding if this is the strategy you want to use when wholesaling your REO deals.
Unlike a double or simultaneous closing, when using an LLC to wholesale, there will only be one set of closing costs involved, so even though it may cost a few hundred dollars to set up the LLC, it may be cheaper to go this route and avoid that second set of closing costs.
Next week I’ll be back with the fifth and final installment of this series, so stay tuned…