Hi all, I'd like to run a scenario by you all and get feedback. A little background about me: I started about 6 months ago to look into real estate investing and about a month ago took my first actions mailing to notice of default lists in my area. I'm doing a ton of reading and want to see if I understand things. First, I know that wholesaling is finding a deal (make your money up front), get it under contract, then sell/assign the contract to a buyer.
The scenario I'd like to walk through: I've found a bank owned property that the bank hasn't had on the market. If I'm going to wholesale with little/no money of my own...
1 - I'd make an offer to the bank
2 - if they agree, I now have it under contract, correct?
3 - I now go find a buyer
4 - do a double close with the buyer first
5 - use the buyer's money to close on the house with the bank
I attended a real estate guru free seminar the other day and he said it's illegal to use your buyers funds and he need a private lender to give you a one day loan to complete the transaction. This contradicts what I've heard elsewhere.
Also, I've heard you can't wholesale bank owned property, but on a recent BiggerPockets podcast a scenario similar to this is described - are there catches to it?
Thanks in advance!
Banks don't like it & further, go out of their way to prevent a buyer to tie up a property & then assign the contract to someone else.
So using your scenario:
1-2) If you have an accepted offer from the bank, you know have it under contract. Depending on the competitive environment they will most likely want you to show proof of funds to show that you can close quickly & easily without a lot of hassles.
3-4-5)Yes, you could shop it around, to find a buyer (hopefully you are wholesaling to an experienced & trusted investor, that makes a HUGE difference in getting the deal to the finish line. You will have a tough time using a double closing the old way as described above, as long as there is with a bank asset manager involved. They want the entity/person on the purchase contract to be the one closing on the transaction. The bank sets the rules of the game, & any variation from "their" plan can be extremely tough to navigate. There have been some clever workarounds in the past, but once a pattern emerges that raises red flags, the banks legal department figures out a way to put and end to it or at least make it more difficult. They simple add another clause to the contracts & adjust corporate policy.
I would never claim that you "can't" wholesale a bank owned property, because it has been done successfully. It just hasn't been easily done with antiquated techniques.
I would add that the part of that scenario that could be construed as illegal is where you do the close with your buyer first. Even if you hold the deed in escrow until after you close with your seller it could still be seen as you selling a property you don't own, which is fraudulent and could result in a long vacation in Leavenworth.
Hmm, looks like I need to read more of the posts on wholesaling and double closes! Thanks for the input so far!!
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