Do you need a Cash Buyer to Wholesale?

Question

Me and a friend have started a wholesaling business in Oregon and are coming to the beginnings of our first deal (Contract signing and inspections being ordered) A family friend has been wanting to find land from off market deals due to low inventory on the market. He said he is fine with us wholesaling the deal and it will be good practice for our second deal. He has enough liquid cash to be a cash buyer but is unsure if he wants to throw $100,000+ of cash into a property. Is it possible to wholesale even if he does not make a %100 cash offer? He can quickly get a loan from a bank. It will be vacant residential land. Would it work similar to if he was paying straight cash? I have mostly just searched for purely cash buyers in the past and am looking for some guidance. Thank you everyone!

Kyle J. · Answer

@Jace Halttunen It is certainly possible. There’s a couple things to be aware of though.

First, as Will pointed out, every wholesaler I’ve ever seen advertises to their sellers that they can do a “quick close” because they’re basically a cash buyer (or their end buyer is at least). However, if your end buyer will be getting a loan, you won’t actually be that quick. You’ll be just like every other retail buyer. (Appraisals are taking quite a bit longer right now.) But if you happen to find a seller who’s not in a hurry to sell, maybe that won’t be an issue.

The second thing to know is (more for your end buyer to know), a bank is not likely going to finance your wholesale fee. Reason being, it’s not actually part of the purchase price.

For example, let’s say you and the seller agree on a purchase price of $100k. You then assign the deal to your end buyer for a $20k assignment fee ($120k total price). If his lender requires him to put 20% down, it’s not going to be 20% of $120k, which would be $24k. It would be 20% of $100k ($20k) PLUS your $20k assignment fee ($20k) for a total of $40k. A lot more in that second scenario.

Obviously these are just rough numbers, but I think you’ll get the point. It’s something to be aware of so your end buyer doesn’t get caught by surprise. Ultimately, if none of that matters though, it can be done.

Will Fraser · Answer

Hi @Jace Halttunen, the only thing that would stop you from selling to a non-cash-buyer would be the promise you make to the seller.  Normally wholesalers think (or perhaps simply prefer) to sell to cash buyers because of the speed of cash and the fact that rough properties can struggle to get approval from some banks, but with land you're looking at a fairly predictable process.

Jace Halttunen · Answer

@Kyle J. Thank you for the detailed response! It will be fully disclosed to the seller that it is not a cash buyer but since it is land it will be able to sell quicker than if it had property on it (hopefully). That is very good to know with the bank though so I can discuss the wholesale fee a bit more with him. I appreciate your help!

Jace Halttunen · Answer

@Will Fraser thank you for letting me know. In this scenario it is for a friend and I will not be promising to the seller that it is a cash buyer. I appreciate the help!