I work with a rehab company in Baltimore City. As our network has grown our shell/purchase opportunity has grown with it. We now receive leads for more good deals than we are able to renovate with our existing group of contractors. Thus, we have become familiar with the realm of wholesaling.
The specific advice I am seeking is to learn how to essentially wholesale a wholesale? We have recently been in discussions with a wholesaler on a deal that we think has much more upside than the negotiated contract price our wholesaler is willing to sell it to us for. Thus, we are considering selling the contract to another developer that we have a business relationship with. However, there are a number of sensitivities involved:
- The property is currently leased and the original wholesaler has the 'keys to the castle' so we can't get this other developer in without the permission and watchful eye of the wholesaler
- We would like to avoid double closing since we intend to assign this contract
I was thinking that the cleanest transaction may be to to simply create an LLC to take the original contract down and then sell the membership interests thereto (on the same day but directly before settlement such that the transaction is funded by the new LLC owner). However, we haven't ever done this and aren't sure of all of the implications. I am sure that consulting with an attorney will be our best bet but before we do I just thought I'd ask the BP community how they'd handle something like this? Thanks for your input!
The best thing to do is Disclose Disclose Disclose.
We have done this a number of times, always with all parties knowing what we are doing.
If wholesaler was happy selling it to you for a fee of A, he shouldn't care if you find a buyer for A+B. He makes his money, as do you.
Just did one like this today actually. Both of us were at the house while the buyer who i found walked it for a second time. We negotiated with the buyer first, then negotiated our split again as we didn't get asking price.
I have been involved in these as the original wholesaler as well, could not have cared any less that someone else was making money on my deal because it was disclosed up front.
NOW, i have lost my lid when i find people i don't know marking my properties up behind my back and trying to sell them, its dishonest and not how anyone should do business.
Sam you are so right. The only time you feel burned is when the ultimate purchasing party comes as a shock. Thank you for the advice.
@Travis Lauchman in the boom market it was common to have multiple wholesalers in a deal. A friend told me he was in the middle of a deal with 5 wholesalers all getting checks. Sadly I had passed on the deal.
My attitude as a wholesaler is I don't care. I know I am selling to you at a fair price. If you can find a bigger sucker to pay more good for you.
Ned Carey, Crab Properties LLC | http://baltimorerealestateinvestingblog.com/
That's my sentiment as well, Ned. On this transaction the 'original' wholesaler was totally against the idea of us reassigning our interests. Upon coming clean about our intention he instantly doubled the deposit amount. Thankfully we were able to talk him down as we are creating an LLC under which we plan to close and either complete the renovation ourselves or sell the membership interests (in effect wholesaling without the need to re-assign the contract).
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