RE Newbie investing in Eastern PA and New Jersey

Arteshia Darby · 2016-01-27T16:46:28-08:00

Good evening Bigger Pockets Family,My name is Tee and I am from the Bristol, PA area. I have been reading books, listening to podcasts and watching webinars for the past 6 months. I finally stumbled across my first deal in Rahwah, NJ and I am slightly nervous, yet confident that with the help of my BP family and the knowledge embedded deep into my soul from reading and listening to the podcasts, I can make this a successful first deal. Ultimately I'd like to buy and hold to create passive income over the years, but in order to get to that point I need to build some capital. My intentions are to wholesale until I have enough to fund a few of my own rehabs/flips. While I build a reputation for rehabbing I intend on acquiring a few investors to expand my rehab projects even further. Once I've saved enough capital to put down payments on properties I intend on purchasing buy and holds to reach my ultimate goal of financial freedom.So having said all of that I have a few questions about this first wholesale deal that sort of fell in my lap after talking to a coworker about being a real estate investor. They have agreed to my verbal asking price and now I'm in the process of drawing up a contract and figuring out my options to pass on the deal to a cash buyer. If someone could please help me by answering the following questions it would be greatly appreciated.1. When doing wholesale deals in NJ, is it necessary to obtain a real estate attorney or will the title company handle the entire transaction?2. When drafting a purchase contract with the seller what are the key components of the contract and what contingencies should NEVER be left out?3. When drafting an assignment contract with the seller what are the key components of the contract and what contingencies should NEVER be left out?4. As a wholesaler, are there ever any closing costs or feeds due from the wholesaler?5. Is a double closing recommended if there is a large profit involved for the wholesaler and does the lawyer and/or title company have to be paid twice for the transactions? If so who pays those fees?6. What are the pros and cons of transactional funding for double closings?7. What is the general rule of thumb when presenting numbers for a wholesale deal? (i.e. What % of the ARV should be used when calculating the deal)8. What kind of information about the property/deal should the wholesaler provider to the cash buyer?Thank you all in advance for all of your help. And most of all thank you all for being apart of the Bigger Pockets family!Have a great evening,Tee

Cedric Stout

Investor · Palisades Park, NJ · Member since 2015 · 165 posts · 29 votes

10y

Hi Tee and welcome to BP! You and I seem to have the same goals and I commend you for taking action.

I'll try to answer a few of your questions and I'll let some others chime in as well :)

1. When doing wholesale deals in NJ, is it necessary to obtain a real estate attorney or will the title company handle the entire transaction? If you find an investor friendly title company that knows how to handle assignments of contract, then they can typically handle the entire closing. They can pull title, schedule closing, and most importantly, cut the checks. Many real estate attorneys can do the same thing as well. You can use one or the other.

4. As a wholesaler, are there ever any closing costs or feeds due from the wholesaler? You can put an earnest money deposit into escrow so that you will have equitable interest in the property you get under contract. Some wholesalers put $10 EMD. I usually put $100 or $250 depending on the size of the deal. As far as closing costs, just be sure to make it clear to your end buyer that they will be responsible to pay all closing costs. If you double close, then that may be a different story. But a simple assignment wouldn't require you to pay the fees.

5. Is a double closing recommended if there is a large profit involved for the wholesaler and does the lawyer and/or title company have to be paid twice for the transactions? If so who pays those fees? Yes! It's not required, but to stay in the safe zone so that there aren't any issues with the seller or end buyer concerning a huge fee you will be making, then double close. The amount varies from wholesaler to wholesaler. Some double close at 10k and up. Others 20k and up. Some just don't care and will still assign.

7. What is the general rule of thumb when presenting numbers for a wholesale deal? (i.e. What % of the ARV should be used when calculating the deal). I use ARV x.65 - estimated repairs - assignment fee = asking price. For less desirable areas, I'll use 60 or 55% of ARV.

8. What kind of information about the property/deal should the wholesaler provider to the cash buyer? It's always good to include standard things such as beds, baths, sq footage, lot size, types of rooms in the house, garage, flood zone or no, etc. Also, it's helpful to provide a scope of work (roof needs replacing, landscaping, needs new cabinets, etc.). Also estimated repair costs, ARV, and comps are helpful. These aren't required, but it's always helpful! Ultimately, the buyer should do their own due diligence as well.

I always try to include tons of pictures and even a video walkthrough of the property (if i can).

I hope this helped! Let me know if you'd like to ever link up and partner on some deals :)

Cedric

0 Reply

Teddi Henry

Specialist · Southfield, MI · Member since 2016 · 84 posts · 18 votes

10y

Hi @Arteshia Darby,

You a have a great game plan and great questions.

Have you tried reaching out to local seasoned investors/wholesalers in your area?

Sometimes they could be a great resource because they have know your market.

Much success

Teddi

0 Reply

Shari Peterson

Lender · St. Louis, MO · Member since 2009 · 348 posts · 164 votes

10y

Welcome to the BiggerPockets family!

I'm not an attorney nor am I a licensed realtor, so I'll leave those questions to those professionals. But I can provide you some info on Pros and Cons of Transactional Funding.

Transactional Funding comes into play when you are wholesaling a deal and you are unable to buy it as "Buyer Name and/or Assigns". If you ARE able to do that, then you don't need to spend a penny on Transactional Funding.

Pros:

--Allows you to conceal the profit spread between the A-B purchase price and the B-C purchase price. Let's say you are buying a property for $50,000 and wholesaling it to your buyer for a $30,000 assignment fee. The total cost of the house for him will be $80,000. Even if $80,000 is a typical wholesale market value of the property, the deal will likely implode and he will refuse to close because you "are making too much money". He may offer you $5,000 - $10,000, a more typical fee. If you don't take it, he'll walk. You can avoid all this by having a separate closing using Transactional Funding, and then a second closing to him the same day at the same title company.

--Allows you to buy Short Sales and REOs/Foreclosures. Usually, an offer for a Short Sale or REO/Foreclosure will not be accepted if the Buyer is e.g. John Smith "and/or assigns". In these cases you need to close on the property and then use Transactional Funding to close and re-sell it to your buyer the same day at the same title company.

--Allows you to close on a property with zero dollars out-of-pocket and walk away with the profit. Wholesalers are typically those who are beginning in real estate investing and want to build up their cash reserves to build up their Buy and Hold portfolio, just as you plan to do. But you have to start somewhere, and wholesaling is a perfect place to begin the journey.

--Is not dependent on your Credit Score. All that matters with Transactional Funding is that you have a Qualified End Buyer under contract at the time the funding is provided. A Qualified End Buyer is one who can prove that they have the cash to close or are already approved for a loan.

--Allows you to make Cash Offers. Typically Cash Offers are more easily accepted over Financed Deals. Many newer investors make the mistake of making a Cash Offer, only to have the deal blow up 2-3 days before closing because a Lender shows up on the HUD-1 Settlement Statement. The HUD-1s have to be approved by the Seller before the closing. Some, not all, Transactional Funders doing same day back-to-back closings do not place a lien on the property and therefore, do not need to show up on the HUD-1. Make sure you ask your Transactional Funder if they will show on the HUD-1 so you don't blow up a deal after all your hard work.

--Doesn't require upfront points or downpayment. Transactional Funding is 100% of the purchase price + closing costs so you don't have to come to the table with any money.

CONS

--You must factor in the Fees of Transactional Funding. As long as you build this into your model, you can basically charge this fee to your end buyer. Make sure you find out all your Fees before you structure the price to your C Buyer.

--It does not cover Earnest Money Deposits or Down Payments. You as the Buyer have to come up with that.

--It is not without conditions. If a Seller calls to verify a Proof of Funds letter from a Transactional Funder and they are asked if any conditions apply, they would be highly unethical to say that there are no conditions. The main condition is that the C Buyer must be qualified and under contract at the time the loan is made. If the Seller is aware that you will be re-selling the property immediately, then they can gain some comfort by asking in the contract that you present evidence, by a certain date, that you do indeed have a qualified end buyer. You do not have to show them your contract -- get verification by having the title company confirm that they are in possession of a valid contract and a deposit in escrow. That way the realtor and seller are happy because they have a legit buyer and you are not being a cad and tying up a property for a long time, keeping it off the market, only to not be able to find a qualified end buyer and actually close on the deal.

--If your C buyer is getting a loan, the Transactional Funder will most likely contact that Lender to verify that indeed the loan is going to come through at Closing. They should be discreet about it but you should discuss with your Transactional Funder whether or not the C Buyer and their Lender are aware of the nature of the transaction (that it is being shortly after it has been purchased). The C Buyer's Lender usually becomes aware of this during the due diligence process because they will discover that you, as the Seller, are not showing up anywhere as the Owner of the property.

Happy Investing!

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Arteshia Darby

OP

Bristol, PA · Member since 2015 · 10 posts · 3 votes

10y

Thank you all so much for the great responses!

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Mark Nolan

Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes

10y

@Arteshia Darby

Welcome to Bigger Pockets. Consider sending messages to other members for specific guidance.

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RE Newbie investing in Eastern PA and New Jersey

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