I have a wholesaling question

17 Replies

hey guys and gals,

I have a question regarding a wholesaling situation I may partake in.

I found a family that was looking for a property in a specific area with a specific number of beds and baths (we'll call them the buyers). They are qualified and pre approved for an X amount of dollar loan and are looking to buy ASAP.

I also found a "for sale by owner" seller that was selling his home in the area that the buyers wanted, with the right number of beds and baths, well within the buyers budget.

Now I have negotiated the price that the seller wanted down quite a bit lower than his asking price and I am ready to have him sign a purchase agreement. Here is my question-I plan on doing a double closing on this deal using transactional funding for the first sale (AB). How would this scenario work when the buyer is using a mortgage for the second (BC) sale? I have only done simultaneous closings with all cash sales and never with one side using a mortgage for funding. Is it even possible to do a transaction like this and if so, what specifically do I have to do to make this all work for everyone involved? I would assume that I'd have to deal with the buyers lender at some point.

Any help and/or information on this scenario would be greatly appreciated.

Thanks!

It is unlikely your buyer's lender will be ok with a title report that shows someone other than the seller (you) listed on the purchase agreement. Same is true of an assignment agreement.

You may want to consider a double close using a transactional loan where your loan funds will be used to close the first escrow. Transactional loans fund only when both escrows are ready to close.

Your buyer will probably not be able to get financing if you do the deal the way you described. There will be no "seasoning" in your ownership. Plus there is a big expense for transactional funding so you want to avoid it.

A better way to close this deal, is to be honest with the sellers and tell them you are not buying the house but will find a buyer. When you do, offer to release your option for a fee. Then let the seller and buyer go to contract. Your Option should be turned in to the title company along with the original contact and the secondary contract with the real buyer. The Option will show up as a line item on the HUD-1 and you will be paid out of the proceeds at closing.

Promotion
Sharestates
America's Private Lender
Receive Fix and Flip Funding Approval In As Little As 24 Hours!
Sharestates helps developers and brokers secure funding quickly with the most competitive terms.
Get Funded

You should be able to find someone to do one-day transactional lending for 2 points.

Canceling your contract with your buyer in order to have them go into contract directly with your buyer can be tricky. Tread carefully with this idea if you have a really good deal tied up. Your negotiations to get the seller down on price are fresh in his memory and now you're admitting to an immediate mark-up. The time to negotiate an option in order to find a buyer was at the beginning, when the seller could understand that if you found a buyer, you'd be canceling it for a fee with his cooperation.

Another thing when selling retail is condition and appraisal. If the buyer is getting a loan, the house will need to be lender ready. What's the current condition? And have you done the comps to make sure it will appraise? Buyers can offer whatever they want, but unless they have cash to make up the difference, the house needs to appraise for your contract price.

I had this situation come up once. I had to own the house for 7 days. I used a money partner to put up 30k to buy it and I gave them 1k to use their money for 1 week, payable when I closed on the sale. Find a rich person, show them both contracts and how safe they are and they will go for it. Also, pray that it works out. ;-)

The C buyer will almost certainly not be able to get a conventional mortgage with 1 day transactional funding in place.

You can do longer transactional funding but it is a lot more expensive and harder to find. The key is a large non refundable earnest money deposit.

Originally posted by @Eric M. :
The C buyer will almost certainly not be able to get a conventional mortgage with 1 day transactional funding in place.

You can do longer transactional funding but it is a lot more expensive and harder to find. The key is a large non refundable earnest money deposit.

Eric: What's your experience with this? Does the C buyer's lender have issue with title seasoning? Or disclosures regarding the double escrow contingency?

Get a sizable deposit from your buyers and then close on it your side before onselling. You'll never get it done contemporaneously. There is plenty of 1% a month money around to fund it till you can close the onsell.

Yes, it has been the case for a year or so that nearly every lender will not lend in the situation where the seller (B) name is not on the title search. In a flip, the A seller shows up. There has just been too much fraud in these types of transactions. Every trans deal I have done in the past year has been with a private lender or cash from the C buyer.

@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.

There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

Originally posted by @Anthony P. :
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.

There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.
There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Fair enough...if an assignment doesn't work with the banks then I would have the points factored into the deal and double close with transactional funding. But again, this would have to be an awesome deal. There are too many deals out there to be tied up with FSBOs and Banks. I definitely wouldn't make this type of transaction part of my business model.

Keep it simple.

Originally posted by @Anthony P. :
Originally posted by @K. Marie Poe:
Originally posted by @Anthony P.:
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.
There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Fair enough...if an assignment doesn't work with the banks then I would have the points factored into the deal and double close with transactional funding. But again, this would have to be an awesome deal. There are too many deals out there to be tied up with FSBOs and Banks. I definitely wouldn't make this type of transaction part of my business model.

Keep it simple.

Really? You wouldn't close on 2 houses a month that you could resell the next day, if you cleared $10K on each (after both sets of closing costs and lender fees if you didn't have your own capital). You don't need $240K?

So you don't buy REOs and no FSBOs and there's just too many deals out there. Does that mean you buy only off the MLS?

Promotion
Avail
Landlording made easy.
Best-in-Class Platform for DIY Landlords
List unlimited units, screen tenants, draft and sign leases, and collect rent—all free.
Use Avail—Free!

Looks like I have a lot of great information here to help with my decision. Thank all of you for chipping in with information regarding this sort of deal.

From the looks of it, I should just talk to the seller and see if he would agree to paying me a fee to connect him with a motivated buyer.

Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.
There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Fair enough...if an assignment doesn't work with the banks then I would have the points factored into the deal and double close with transactional funding. But again, this would have to be an awesome deal. There are too many deals out there to be tied up with FSBOs and Banks. I definitely wouldn't make this type of transaction part of my business model.

Keep it simple.

Really? You wouldn't close on 2 houses a month that you could resell the next day, if you cleared $10K on each (after both sets of closing costs and lender fees if you didn't have your own capital). You don't need $240K?

So you don't buy REOs and no FSBOs and there's just too many deals out there. Does that mean you buy only off the MLS?

My point is to keep it simple.

To answer your question, I would not make this part of my business model if there was an easier way to achieve the same results or greater with less headache. This means I personally buy off market property and structure my own deals. This works for me...

Originally posted by @Mike F. :
Looks like I have a lot of great information here to help with my decision. Thank all of you for chipping in with information regarding this sort of deal.

From the looks of it, I should just talk to the seller and see if he would agree to paying me a fee to connect him with a motivated buyer.

Pretty sure need a license to do that =)

Originally posted by @Anthony P. :
Originally posted by @K. Marie Poe:
Originally posted by @Anthony P.:
Originally posted by @K. Marie Poe:
Originally posted by @Anthony P.:
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.
There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Fair enough...if an assignment doesn't work with the banks then I would have the points factored into the deal and double close with transactional funding. But again, this would have to be an awesome deal. There are too many deals out there to be tied up with FSBOs and Banks. I definitely wouldn't make this type of transaction part of my business model.

Keep it simple.

Really? You wouldn't close on 2 houses a month that you could resell the next day, if you cleared $10K on each (after both sets of closing costs and lender fees if you didn't have your own capital). You don't need $240K?

So you don't buy REOs and no FSBOs and there's just too many deals out there. Does that mean you buy only off the MLS?

My point is to keep it simple.

To answer your question, I would not make this part of my business model if there was an easier way to achieve the same results or greater with less headache. This means I personally buy off market property and structure my own deals. This works for me...

I only buy off market properties and structure my own deals as well. Never bought a listed property. I didn't know that off market properties weren't considered FSBO.

Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
Originally posted by Kristine Marie Poe:
Originally posted by @Anthony P.:
@Mike F. I've never flipped a contract to anyone other than an all-cash investor. But I would try to keep it simple and assign the contract over to the buyer.
There would have to be a good reason for me to go through the trouble of double closing on a deal. Especially in a state that required me to have funding in place before I could be part of the deal. $5K to $10K isn't worth me even being in the chain of title.

My experience is that an assignment of contract will be rejected by an FHA or conventional lender. Even if the buyer has cash to pay for the assignment fee, the lender won't allow a contract where the buyer isn't the borrower. An assignment is a red flag in retail lending.

I'm all for finding a way to close on the deal, and would do it and have done for $10K. Being in chain of title doesn't bother me. Controlling the re-sale is everything.

Fair enough...if an assignment doesn't work with the banks then I would have the points factored into the deal and double close with transactional funding. But again, this would have to be an awesome deal. There are too many deals out there to be tied up with FSBOs and Banks. I definitely wouldn't make this type of transaction part of my business model.

Keep it simple.

Really? You wouldn't close on 2 houses a month that you could resell the next day, if you cleared $10K on each (after both sets of closing costs and lender fees if you didn't have your own capital). You don't need $240K?

So you don't buy REOs and no FSBOs and there's just too many deals out there. Does that mean you buy only off the MLS?

My point is to keep it simple.

To answer your question, I would not make this part of my business model if there was an easier way to achieve the same results or greater with less headache. This means I personally buy off market property and structure my own deals. This works for me...

I only buy off market properties and structure my own deals as well. Never bought a listed property. I didn't know that off market properties weren't considered FSBO.

Kristine Marie Poe I think we are getting a little off track here. But in our world, FSBO properties are being sold through a sales channel and are not considered off-market. Think of off-market property as being property that is bought and sold off-the-grid. Hope this helps.