Is this how I structure a wholesale?

Question

Example: A house fsbo on 2/3 acre, needing app. 50K in repairs to make it live-able. Comps are selling for 180K. Seller owes 35K on mortgage. Good schools. Low crime neighborhood. Great rental location. Can I offer the seller 60K and wholesale it at 90K?

First, is this how I would structure a wholesale deal?

Second, as an investor would any of you buy this at 90K?

Third, can I wholesale if the seller still has a mortgage left on the property, or does a mortgage automatically require a different deal structure other than wholesale?

Thanks in advance for your replies  :D

Brian Haskins · Answer

You can wholesale houses with a mortgage as long as the price is higher than the mortgage so it gets paid off. You ask if you can buy it for a certain price and sell for a certain price that really depends on what your buyers will pay. As a wholesaler you need to know what formulas your buyers use and then make sure you buy the property much cheaper so you can make your spread. to structure a wholesale deal. You place the house under contract and then assign the deal to another investor using an assignment contract or you will do a double closing if they are allowed in your area.

Brian Haskins

Jon Holdman · Answer

An existing mortgage does not prevent wholesaling a deal.  Wholesaling is essentially brokering a deal, and properties with mortgages get brokered hundreds of times every day.

$180K * 70% = $126K
Less the repairs of $50k is $76K
So, at $90K, its a crummy deal, IMHO.
I know there are buyers who would go up to 75%, or $85K in this deal, so at $90K its still a bad deal.

Really? You want to snag $30K off a $90K deal?  You better have buyer's willing to pay a pretty nice price.  More realistically, you pay the seller $70K and sell it to an investor for $75K.

David Breitzmann · Answer

Many veterans, who are far more experienced and knowledgeable than I, would say building relationships viz; closing viable deals, is core to increasing word of mouth referrals.

If one becomes noticed as someone offering prices which are "ridiculous," it may become a serious problem at the point when you draft a business plan.  It's assumed that has yet to happen because, if so, the research entailed would have answered the question.

Does this strategy fit into your overall long term vision?

In spirit,

David

Paul Ohlson · Answer

Rod,

The update is I offered 50K for the place. The brother in California is greedy and didn't want to budge from their asking price. If I were more versed in structuring deals I probably could have come up with a workable solution, but since I'm new I just left it at that. I figure I'll call again at the end of the selling season and make a lower offer if they haven't sold the place yet.

Dan Krause · Answer

:pup: Would you absolutely have to have an assignment contract with the seller to do the kind of deal as described by Jon and Paul? Thanks, Dan

Rod Wiggins · Answer

How did things go on this deal? I havent began investing yet, but my thoughts when I read your post was to offer only about $40k. That way each brother can get a few hundred dollarsa, and it still leaves a lot of wiggle room for you to get it sold/make a nice profit.

Paul Ohlson · Answer

Thanks Brian,

I really appreciate your response. You guys are all encouraging me so much because I feel like I have a place I can go now to get DETAILED answers on how to proceed with action in this business, as opposed to the previous forum I was part of where people gave only vague answers.

BP really is a great community!

Paul Ohlson · Answer

Peter,

Thank you, thank you, thank you for your advice!

I'll say that one of the sellers is very motivated. They are two brothers, one here and one in Cali. The home was their moms and they bought it from her before she passed away. The brother in Cali just wants to sell the house. The brother here is a contractor who says at one point he wanted to tear the house down and put three townhomes on the plot, but because of his brother, his age, the economy (and probably zoning regs) he changed his mind and has decided to sell. Who knows what drama that situation could bring. I don't expect him to go for a 50K offer, but I don't care. I just want to get the practice of making ridiculous offers so I get over the fear of it. And, hey, if he accepts - even better!

Thanks again Peter and Jon.

Hey, I just realized the three of us make Jon, Peter, and Paul. How biblical :)

Justin S. · Answer

You can do a lot with deals like this.
                    
                    1.  Offer them all cash for it.
                    2.  Offer to take over payments
                    3.  Offer some cash now, and some when you sell.  
                    
                    When homeowners have a lot of equity, the options are vast you can find ways to make everyone happy.  Find their motivational button.  
                    
                    Remember, you can negotiate on price and TERMS.  Good luck.

Peter Giardini · Answer

Paul... how motivated is the seller?  Why are they selling and how fast to they need to do it?

Assuming the value and the repair estimate is correct, I won't offer more then... $50K... and that would leave you with a $3K to $8K profit.

But that is just the first part... the other critical part to wholesaling is finding a buyer who can get this deal closed within the timeframe for the contract.

The more motivated the seller the more options you have.

Best of luck!

Is this how I structure a wholesale?

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