"Hack" of 9/29/14- How to Wholesale a HUD Deal Without A Double Close

HUD does not allow assignment of contracts. So if you're a wholesaler and you encounter a HUD deal, what are your options? You can use transactional funding but why pay money for a day when there's a better option? The "Hack" of this week reveals a creative way to wholesale a HUD deal. But before I reveal what the hack is...let me describe what a "HUD deal" is and how does wholesaling work.

What is a HUD Deal?

Housing & Urban Development (HUD) have properties all throughout the country (you can get the list of properties for sale in hudhomestore.com). They usually try to sell them to owner occupants during the first 15 days of listing them. After 15 days and the property is NOT sold they offer it to investors like us. They usually prohibit assignment of contracts. They want the one on the purchase contract to be the exact person or entity to close on the transaction. They give you 30-45 days to close.

What is Wholesaling?

If you find a good deal, you may want to just wholesale the deal or sell the deal to another investor. One can wholesale the deal through assignment of contract - meaning, the end-buyer will take over the place of the wholesaler on the purchase contract. In exchange, the wholesaler gets an assignment of wholesale fee.

When assignment of contract is not allowed, sometimes wholesalers turn to transactional funders. These guys will fund the deal (for the wholesaler to buy the property from the seller, say from HUD) for 1-3 days provided he has a lined up buyer (another investor - say a rehabber). Transactional funders charge anywhere from 1.5% to 3% of the money you need to buy the property. When you use transactional funding, you essentially close the transaction first and then you can sell the property to your buyer and he will close on it later. This is called a DOUBLE CLOSE.

The downside of a double close is the higher closing costs you end up paying. With assignment of contracts, you get your buyer to pay for the closing costs and there's only one set of closing costs (whereas in a double close there are 2 sets of closing costs).

"Hack of the Week": Add a Buyer to Your HUD Contract

For you to avoid doing a double close, one option you have is ADDING A BUYER to your HUD contract. HUD allows you to do this. But for you to do this, you need obviously the cooperation of your buyer. Why? Because your buyer needs to give to your HUD agent his personal info (like social security number) which HUD needs to get his name added as an additional buyer. Once your buyer is added onto the contract, he brings the money to close the transaction. You then sign a quit claim deed (quitting your interest on the property to your buyer) in exchange for your wholesale fee.

For your buyer to agree to doing this, you may want to offer him a discount - say shoulder 50% of his closing costs. By doing this, you still end up paying less in closing costs and you don't have to pay any transactional lender.