I have the opportunity to purchase a property from a wholesaler who won the property at Auction. The wholesaler wants to assign the contract before the auction date closes. Because this property has a decent amount of built in equity and the court allows financing of the property, I am looking into alternative ways of structuring the deal instead of the straight pay the wholesale fee and then put a separate down payment on the property. One thought is to structure the deal so that the wholesale fee is effectively considered part of the purchase price and therefore can be included in the amount financed? I would expect to pay the wholesaler a slightly higher fee for the delay in payment. Based on my calculations this approach, even with the higher wholesaler fee, would decrease the amount of cash I need to put into the deal up front.
My question is, has anyone tried this or a similar approach? If so, how did you structure it so that the lender viewed it as single transaction?
Scott, it's going to be hard for conventional lenders to do wholesale deals specially with your wholesaler buying this at auction. They will only fund your transaction and they will view it as 2 separate transactions.
Using a Hard Money lender will be better as they understand auctions and they deal with wholesalers.
And yeah - I agree with you on NOT paying the wholesaler before the closing. In addition to lowering the cash you need, that also protects yourself/ your interest in the property (because what if the wholesaler is just scamming you and does not have a legal right to buy the property).
If he is assigning the contract/auction bid.....that’s the Price you can finance against, excluding the assignment fee.
@Scott Tucker I dont think a traditional lender will allow you to purchase a property from a wholesaler since the wholesaler doesnt actually own the property. I would suggest using a hard money lender or private lender to purchase the property and then refi later on
Thank you Michael, Wayne and Lydia for the responses. I was expecting this to be the conclusion but wanted to see whether I was missing something.