First wholesale deal. Traditional mortgage. *100% BPers.*
This was a unique transaction, and as much as I'd like to say I've "been there, done that, seen it all," this was my first transaction involving a wholesaler.
Cast of characters:
@Account Closed - Wonky-deal-friendly escrow officer. I believe in giving credit where due: she is good at putting up with my BS.
Me - Lender for end-buyers who are sitting pretty in a 30 year fixed with the normal (read: minimal) owner-occupied down payment.
On my end, literally everyone in my company said this was impossible to put together while complying with all the normal mortgage rules. I had many conversations. The way they played out was "you can't do that" - "why?" - "because xyz" - "ok but we're going to do xyA, not xyZ" - "ok but you still can't do it" - and one by one I overcame all objections (btw this is one where you ask the end-lender what to write in the contract, not the other way around). Even after overcoming each and every itemized objection, I was still told repeatedly "it's not going to happen" by small-picture people who could not grasp that there's no rule explicitly against this.
Ya know what it means when someone who doesn't understand the situation says "no" but can't articulate why? It means "yes, but I don't know it yet." So you convince them by doing it, and asking forgiveness rather than permission. I have some polite "I told you so" phone calls to make tomorrow.
We did have some bumps in the road. Honestly this was not the sexiest/smoothest transaction I've worked on, but hey it was my first wholesale deal as a traditional lender, and I learned a lot.
I do not believe Chelsea made a super duper killing, but she came out ahead and we all learned enough so that net profits in the future should be larger now that we know our limitations/parameters/etc of staying in "soft money" world with these deals, combined with what Shari's transactional end-lender's expect.
The theoretical framework here is that if wholesalers can expand their marketing to include end-buyer owner occupants using Fannie/Freddie financing, that vastly wider pool of potential buyers should let them unload the property for much closer to full retail than if they can only sell to folks using hard money or all cash that aren't going to live there. Now, in practice, this is constrained by what transactional hard money mortgage rates/terms look like, which is the financing that the wholesaler must use. It's a little uglier than vanilla hard money, but if the spread between "all cash" and "traditionally financed end-buyer with minimal down payment" values is large enough, it'll be worth it. You've got to find that balance, it will be very deal specific. Shari did not lend based on anything to do with Chelsea, but based on looking at the loan approval and appraisal of the end buyers, which makes sense.
Tying it up "all cash" with a 60 day close of escrow (LOL!) helps too. Incidentally, I'm pretty sure that everyone won on this except the seller.
- Chelsea made money and learned, so she won.
- I lost money because it was a baby deal and opportunity cost is a thing, but I learned a lot, so big picture I won.
- Shari and her end-lenders won.
- Shannon... I made you do a lot of extra BS, you can comment here if you won or not.
- The original seller lost out. But the original seller is a big bank that likes to cause Great Recessions and has the IQ of a potato (see above: "all cash, 60 day close..."), so F em.
- End buyers won too: appraiser was being super conservative (I told her in no uncertain terms what all was going on; there was no fraud or secrecy in any facet this transaction), but even according to that appraisal the end buyers got it for about 5% less than appraised value. Who knows what an 'impartial' appraisal would bring it in at, but end-buyer's father is a contractor who will be fixing that place up big time without charging what a contractor normally charges, so it's moot.
OK, that's all I got. Was a fun and unique deal. All BP team made it happen.
