How is mortgage affecting wholesale deal?

Question

For a wholesale deal, I read somewhere that one of the question to ask the seller is "How many years left in mortgage?". My question is why ask. How is it affecting a wholesale deal???
Does that mean my offer shouldn't be less than the remaining principle of the mortgage???

Thanks for the input

Sean Terry · Answer

Knowing the mortgage amount is obviously a very important question, buy the remaining time left....maybe.  You can just come out and ask "how much do you owe?" and 99.9% of the time the seller will tell you.  I don't beat around the bush, just get to the heart of the matter if that's the true information you're looking for.

Now I can tell you knowing the mortgage amount, payment amount, interest rate is crucial to a wholesale deal, here's why.

Roughly 4-5 of the 10-15 properties we do a month are negotiated with the seller leaving the existing loan in place for 3 to 5 years.  Thus buying it "subject to" the existing loan.  You can agree to give the homeowner several thousand dollars for their equity.

Now you have a wholesale deal that doesn't need "hard money financing".  The buyer can put a down-payment of more than you have to pay the motivated seller and you can keep the rest.

Here's an example:  We just closed on a deal last week where we contracted with the seller to give them $500 and leave the existing loan of $84K in place for up to 5 years.  
We then assigned the contract for $10K of which $9,500 went to us, $500 went to the owner and the buyer got a below market property for only $10K out of pocket with 6,5% financing.
We have the title company service the loan, which I suggest.

This is a great strategy the cash buyers LOVE to take advantage of.

Cheers ;)

Sean

Bill Gulley · Answer

Sounds like a sneaky way to estimate what they owe if you know the rate and payment amount amount. SOme questionaires ask 50 questions, like an psyc test to get more information than they would otherwise say. You don't need this at all. Sounds like verbage to take up space in an article or a guru book! What the owner owes has no bearing on what it is worth today or what you should give for it. It only becomes relevant if you start talking about seller financing, the amount they can carry back in equity. Good luck, Bill

Account Closed · Answer

If you are buying property subject to, you'd want to know how much time is left on the mortgage.

I suspect that there aren't a lot of subject to deals out there with so many people under water. But maybe, an older place that had been owned a long time and never had additional financing placed on it.

Bill Gulley · Answer

Hmmm, started out as a wholesale transaction.....Sean, guess you threw a curve ball in there and everyone thinks that's a wholesale deal.

Just to clarify, you can use seller financing, lease/options, subject-2, contract for deeds or other techniques to buy (or sell) a property.

Wholesale deals are simply buying properties that need some work and you turn around and sell it to someone who will accomplish that work. That's the deal.

Then the rehab guy sells it again.

Can you use seller financing or such arrangements to acquire or dispose of the property in any one of those steps? Yes you can.

Do you need to know the seller's motgage terms for a wholesale deal? No.

Do you if you need to do more creative ways to finance any deal? Yes.

This just got very complicated, I don't know why??? LOL

Bill Gulley · Answer

Well, I'm not Sean, but they are both Real Estate Sale Contracts...you are the buyer on one and the seller on the other! Good luck, Pat.

Pat A · Answer

In Sean example, what's the name of contract between wholesaler and seller, and between wholesale and end buyer.

Just want to see what should be included and wording.

Another thing, what's gonna happen at the 5th year, as a wholesaler. How can I get out from the deal??

Bill Gulley · Answer

Yep, like I said, you don't base your price on what they owe on one hundred percent of the properties you buy. You need to know if you are going to use that money to finance your deal.

How is mortgage affecting wholesale deal?

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