Brooklyn, NY · Member since 2013 · 154 posts · 12 votes
hey BP. I'm looking to add a new funnel to my lead source by Wholesaling REOS. I know the banks frown on that but I've been seeing that there are ways around that. One way I've heard was by buying the REO in an entity, and passing the entity off the the buyer and closing. Another way I heard is by putting offer in your name in the care of the llc. Wanted to know the input of those who are actually flipping REOs, how they structure the contract, clauses uses, etc to not alert the bank that you're Wholesaling the property.
All insight will be valued especially from those actually doing this daily. Thanks!!!
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Marc Cesar Marc - I think the biggest challenge with REO's is having Proof of Funds and a sizable deposit before they'll even look at your offer. The POF can't be the simple ones printed off the internet; the banks are aware of that.
The last time I made an REO offer, they called my bank to confirm the POF was valid. And a $5,000 cashiers check was due when the offer was accepted. 3 day inspection period.
Contractor · Cleveland, TN · Member since 2016 · 75 posts · 18 votes
10y
Marc Cesar I too would like to know how this process is done or can be done. So any advice from those wholesalers who are frequently in the market that have done anything like this?
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Marc Cesar Marc - I think the biggest challenge with REO's is having Proof of Funds and a sizable deposit before they'll even look at your offer. The POF can't be the simple ones printed off the internet; the banks are aware of that.
The last time I made an REO offer, they called my bank to confirm the POF was valid. And a $5,000 cashiers check was due when the offer was accepted. 3 day inspection period.
Brooklyn, NY · Member since 2013 · 154 posts · 12 votes
10y
hey Tom. I've attempted this before and I provided POF letter from a lender and as far as the EMD is concerned I only sent a copy of the a check until my 14 day inspection occurred and everything was up to par during inspection. Unfortunately inspection failed so I didn't loose any funds. If I did actually send a check I presume I would of been out of that EMD. But I understand what you're saying though.
Real Estate Investor · Richmond, VA · Member since 2016 · 133 posts · 31 votes
10y
Thanks @Tom S. for sharing. I've wondered about that. Has anyone ever used Hard Money lending or transactional funding to close a REO deal? If so, did you have issues with the Proof of Funding letter? Does anyone have any transactional funding companies that they have worked with and would recommend?
Hi Nicole. I am a transactional funder who has funded REO deals for our clients and other double closings such as HUD deals as well. I have had clients say that my POF letters work and some said that it didn't work. I don't believe you will ever find a "one size fits all" proof of funds letter. As for recommendations, google transactional funding companies and if they have referrers, contact them via social media or other routes.
Wholesaler · Oklahoma City, OK · Member since 2012 · 34 posts · 25 votes
10y
You can purchase properties in a trust.
However as stated before you will have to have prof of funds.
As you may or may not know trust will have trustees. And trustees can be assigned if I remember correctly.
Sorry it's been awhile since I've done one this way.
That I know of this is the only way to assign REO properties as they do not allow you to assign/wholesale them.
Hope this helps.
hey Tom. I've attempted this before and I provided POF letter from a lender and as far as the EMD is concerned I only sent a copy of the a check until my 14 day inspection occurred and everything was up to par during inspection. Unfortunately inspection failed so I didn't loose any funds. If I did actually send a check I presume I would of been out of that EMD. But I understand what you're saying though.
I find it weird that they allowed a "copy" of a check to get you out paying any earnest. On the other hand, if you HAD given them the check, as far as I know, it IS refundable if the property genuinely fails inspection (as opposed to you just backing out because your end Buyer disappears)!
Anybody, that's right isn't it? Poor Marc could have got his "real" check back?...
Brooklyn, NY · Member since 2013 · 154 posts · 12 votes
10y
I've spoken to quite a few folks who have said they send check copies to put in their offers Contingent on passed inspection, then they hand over EMD. If they've had success doing it thus far then I don't see why not follow their insight. But hey as I said didn't loose any money on deal.
Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
10y
@Nicole Graves Hi Nicole - finally catching up to your original question to me! For funding, I used small local banks and it was very similar to HML. They provided purchase + rehab funding that was issued in draws after each phase of the project. Much cheaper though, 5% interest rate and 20 year term (commercial loan). I rehab and then keep as a rental, so this type of funding makes sense for that strategy. I've never used transactional funding before but see you did get some responses on that question of yours.
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
I've wholesaled many REOs. I would avoid selling an entity, because there is soo much red tape. If you have a cash buyer and an investor friendly escrow/title company, than it's fairly easy to do a double closing.
The contract is structured the way the listing agent structures it, because they are almost always listed properties. You want to make the listing agent your friend. They can be invaluable to you in getting the winning bid on these properties.
You would put the contract in the name of your LLC, and it says in the contract that you do not intend to live there.
Other than that, there is a disclosure that is shuffled into the closing statement that says you will be immediately reselling the property for a profit. The bank rep wont see that until you're ready to close, and it's not something they have to sign specifically. If you have a good escrow officer it shouldn't be a problem.
I'm happy to answer any questions, I've done this many times. All my answers are based on my experience here in CA.
Real Estate Investor · Richmond, VA · Member since 2016 · 133 posts · 31 votes
10y
@Account Closed
Have you ever had issues with not being able to find an end buyer for an REO after it is under contract? Do you know what happens with the contract if you are not able to locate a cash buyer? I have a house that I would like to put in an offer for and rehab it, but incase I am not able to and would like to wholesale it another investor I'm wondering what happens if my funds don't come through?
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Nicole Graves it's just like any other wholesale deal, if you back out during your inspection period, you should get your deposit back. If you go past that time then you probably will forfeit your deposit.
However once you put a property under contract, you should do everything in your ability to find a buyer. Your reputation is all you have in this business and you don't want to be remembered as the wholesale who doesn't close.
Real Estate Investor · Richmond, VA · Member since 2016 · 133 posts · 31 votes
10y
@Account Closed Thanks for the feedback. I am new to real estate investing and this would potentially be my first deal. I appreciate the helpful information.
I've spoken to quite a few folks who have said they send check copies to put in their offers Contingent on passed inspection, then they hand over EMD. If they've had success doing it thus far then I don't see why not follow their insight. But hey as I said didn't loose any money on deal.
You can submit a copy of a check to get an executed contract but the entire earnest money deposit will be due in no more than two days.
As for wholesaling REO's it is possible but usually takes more than just a letter from a hard equity lender. Sometimes they'll want to see an actual bank statement. As for using transactional funding to fund the first half of the deal, that would be difficult do to the fact that there might be a cooling period in which the property may not be able to be resold. I'm guessing that's why you're hearing you could just sell the llc.
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Rasheed Hope I don't know about FL but in Caifornia I've never run into any of those problems in any of my deals. Transactional lender proof of funds works fine and transactional lenders set up their business specifically to help Wholesalers in this position.
You are right about the deposit though. A copy of a check will work until the offer is accepted. Then you will need to come up with the Ernest deposit ASAP. From my experience, Reverse Mortgage REOs have a minimum 10% deposit, so that can be hefty and worth noting.
Residential Real Estate Broker · Hollywood, FL · Member since 2014 · 35 posts · 0 votes
10y
Originally posted by @Account Closed:
@Rasheed Hope I don't know about FL but in Caifornia I've never run into any of those problems in any of my deals. Transactional lender proof of funds works fine and transactional lenders set up their business specifically to help Wholesalers in this position.
You are right about the deposit though. A copy of a check will work until the offer is accepted. Then you will need to come up with the Ernest deposit ASAP. From my experience, Reverse Mortgage REOs have a minimum 10% deposit, so that can be hefty and worth noting.
Yes it works but if the property has a seasoning period i don't know anyone that'll have funds in limbo for months to recoup investment.
On a resent deal I'm involved with now my buyer submitted a hard equity pof and the offer was accepted on a VA property so the pof works but they also wanted a bank statement from the actual buyer.
Wholesaler · Mckinleyville, CA · Member since 2015 · 192 posts · 69 votes
10y
@Rasheed Hope If POF is a problem, you can always make your offer out as a Hard Money Offer. Even if you're using transactional lending, some transactional lenders are also Hard Money lenders and can provide a bank statement. Then the seller know upfront that you're using someone else money, but hard money works like cash in escrow. So hopefully you're offer still gets accepted.
HUNTSVILLE, AL, AL · Member since 2016 · 26 posts · 2 votes
10y
Hi
@Account Closed Chelsea, I really appreciate your lay out of how wholesaling REO's work. I am a newbie and don't have funds to do REO assignments, but get sent these properties by my REA. Any advice will be appreciated.
Usually REO flips are done with a double closing, where you have a transactional funder (hard money lender) front you the purchase price for the first close (usually costs $1,000). Then you have your end buyer immediately purchase the house from you at a higher price, simultaneously paying off the hard money lender and collecting your commission.
Any hard money lender you work with will be happy to provide you with any POF.