First Wholesale Deal

12 Replies

Hi BP,

I'm new to forum and to RE. I'm still in the learning process and been lurking the site for a few months now. I've been looking for the perfect property in Kansas City for my first flip for the last couple weeks (of course this makes me nervous) I have a good connection on all/any repairs that need to be done. 

Anyways, I've ran into a deal that was thrown at me from one of my REI buddies i grew up with. He purchased 80 low end properties about 2 years ago and is renting them all out in a C-D class neighborhood in Kansas City MO (Ghetto). Without getting into any number details he's offered to sell me 3 properties at 6k each. If I know an investor that wants to purchase these properties at 15k each as-is how would i work an assignment into the deal. I really don't want to purchase these properties privately (do not have an LLC yet). Im pretty sure this is considered wholesaling. The motivated seller is a good friend of mine so i trust him. The deal just sounds too good to be true. Also, for my first deal in RE i feel as if it is a little complicated.

Any feedback is greatly appreciated!

This is your buddy.  I would be very clear of my intentions and make sure it is ok with him.  If he is ok with you shopping his offer of properties with a good guy discount, then go for it.  

Because you know him so well, I would probably forget the purchase and sale agreement assignment and go straight for an exclusive option to  purchase, which is recordable.  Have the right to assign the option. Give yourself enough time to find your buyer.  The end buyer pays you the diff between your option price and the sales price in exchange for a quitclaim deed from you.  It's stronger than a PSA  in my area.  Not legal advice,  just what I would do at this time in my area.  Good find @Joshua Blond !

Thanks @Steve Vaughan

I know it is a good opportunity just want to make sure i execute it properly. He wants 6k a property and i can purchase three. Which brings it to 18k. I've dug a little deeper into the deal and I guess these investors want them to be tenant ready (low income area-not asking for much) and they will offer around 20k per unit if so.  my buddy told me each property needs about 5k in repairs on the conservative side. Now we are looking at roughly 33k. My funds are being privately lent to me so i cannot have it tied up for very long. As i said previously this would be my first deal in RE and I'm nervous these investors could back out and i'd be stuck with properties in the ghetto and 33k owed to my lender. I know I'd eventually be able to unload the properties just don't have enough skin in the game to be confident. 

I see.  A hands-on lesson in risk / reward!  I would buy all 3, fix one and sell it or buy all 3 and wholesale all 3.  If this investor won't buy until all 3 are turnkey/rehabbed, you may need to find a different investor. I would fix and sell as I go.  Having to do all 3 adds a lot more risk, like you fear.  Many a good intention has run out of time as a whole project gets delayed.  Please keep us posted @Joshua Blond .

@Joshua Blond

Go for it. Get a P&S with an assignment clause saying you can assign and I agree, let your buddy know your intentions, friendship gets messy but better to be honest. Find the buyer and go from there. Or maybe work out a deal with your friend. I duno, get creative. If you know there's a deal to be made then no excuses make it happen. Real estate is about making calculated leaps and taking action. Don't think for too long, just do.

@Kyle Cabral thank you, my buddy knows my full intentions. He is actually the one that proposed this situation to me. He just doesn't have the 15k on hand for some reason. He says he's received letters from investors almost every week wanting to purchase some of his properties. Pretty much I'm repairing these properties with my own cash and using his investor leads to sell. 

@Steve Vaughan I'm going out of town for a week and when i get back the deal is going to the table and some real numbers will be made. At this moment its all hypothetical but looks good. Purchasing all three properties and repairing/selling one at a time sounds like a good plan. I just couldn't see anyone purchasing a property in the hood. That's why doing all three was proposed so that it could be a package deal for an investor. We'll see what i come up with once i actually see the properties and some real numbers are known. 

why not just wholesale without any money out of your pocket?  Since they are in the Kansas city ghetto 64127 or close. Find a end buyer at 10k each. If you don't have any investor buyers, you can co wholesale them with me and we can split the assignment fee. I have kc buyers for the ghetto.

@Gordon Cuffe

 That is a good idea. I really don't have any investors at the moment except for ones relayed from my buddy/seller. I was wanting to make a little more then 12k but if I go that route I'll definitely be in contact with you. Also, do homes in the ghetto sell to owner occupants or is it mostly just investors? 

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mostly investors. owner occupants cant get loans below 50k as it isn't worth lenders  to do a loan on that small of a amount.  Most people in those bad areas are on some sort of government assistance for income also. There is just a trade off on how much you might make if you invest money and a lot of time into selling an investment house. When you wholesale a house ,you don't have any money into the deal and the goal is to make cash as fast as possible like 30 days or less without having to work on it 40 hours a week.

WHOA! What an offer from @Gordon Cuffe! He's willing to teach you the ropes, split the proceeds, and you still make a profit! that's a pretty sweet deal in my book. I can't vet for Gordon or anything but I think its a great opportunity to learn the basics, understand the concepts, and a great opportunity to open more doors and connections. I think that alone may be worth more down the road.

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