wholesaling with no equity?

10 Replies

Hi everyone, i need some help. im looking to find wholesale deals but my question is: if i find a foreclosure property worth 200k ARV and the owner still owes 100k and wants to sell it for that much; it doesnt make sense to me because they wouldnt make any money right? they would just sell to pay off their mortgage correct?


You're missing the most important point here...foreclosure.  They are losing the house.  Making money on it isn't going to be a high priority to them, although some still hold out hope for that inheritance, or big lottery win...right up to the day they are forced out.

If the buyer you are wholesaling to is looking to flip this house, then it's not a good deal.  If the buyer is looking for cash flow, and is financing their buy, it's also not a good deal if they need all of the money to buy through the financing...they won't get more than 80%, so they would still need to get $40k in cash.

If the buyer is coming in with all cash, then you may have a good deal to wholesale to them. If they refinanced after they bought it at 80& LTV, they would only have $40k in cash left in the deal. Now, how good the deal is to them depends on their financial requirements for cash flow.

Bottom line is this.  Your ultimate buyer will be the one deciding if this is a good deal...so start with them.

Joe Villeneuve

Hi Gabriel.

Finding motivated sellers is half the battle. In this case you have an opportunity to help them avoid the severe financial impacts of foreclosure. Selling the house for $100K would likely be a great benefit.

If you are wholesaling and have already established that the ARV is $200K then, depending on the repairs required, this could be a good deal. You would have to complete your analysis to make sure.

Best of luck in the deal.


You could also see if you could work out a short-sale with the bank that's about to foreclose.

New investors looking to get started wholesaling should, IMHO, avoid "foreclosures" (NOD, etc.) altogether. Why? People in foreclosure right now generally don't have any equity - otherwise, they'd just sell the house to get out of the payments and into the cash.

Talking to people in foreclosure, and trying to do short sales, etc. - it's all very rough waters for a new investor. 

For cash buying (wholesaling), high % equity is super important - otherwise they cannot accept your discounted offer - and you will fail trying to negotiate directly with banks unless you know that world and have proof of funds, etc.

Forget foreclosure as motivator - you'd be better off looking at % equity (minimum 40%) combined with other motivators such as:
1) absentee owner ("tired landlord" & "2 house payment" profiles)
2) probate/estate sale
3) divorce
4) code violations

Dev, I agree with your assessment on going after foreclosures...before they are foreclosed on. REO, HUD even FMA is where I go. Every market is different though for this. Here, it's a target rich environment.

Joe Villeneuve

@Joe Villeneuve Oh heck yeah - I bid on HUDs and REOs all the time. Problem here is we have stiff competition for anything on the MLS so they get bid up. But there are still deals to be had - to your point - AFTER the foreclosure.


We have competition her too.  I refer to it as their "private auction" after the foreclosure auction.  LOL.  We just wait until the initial accepted offers are withdrawn, the price comes down, and we spring with cash and a fast closing.

Joe Villeneuve


I'm also getting started in the field and was hoping you could provide a bit of clarification on some points you made above (I know this comment is coming in MUCH after the fact, but one always has to ask questions);

You've stated "if the buyer is looking to fix & flip, this is not a good deal" and "if the buyer wants to do a buy & hold, also not a good deal" with the further clarification that it would not be a good deal "if they need all of the money to buy through the financing" ARV would usually suggest a 140k purchase?

Finally, I wasn't sure what you meant by "if they refinanced after they bought it at 80% LTV, they would only have $40k cash left in the deal"

If I'm understanding the example correctly, we have a home owner who owes 100k on a home that could be worth 200k after repairs. The home owner incentive to sell is the foreclosure, which means you could bid him at say, 100k even or 105k so they have something left, that gives you up to 30k in repair costs while still maintaining a 20% profit: sale for 200k (ARV) - 40K 'profit' - 30K in repairs = 130K purchase - 105k (owed+cash walk away) - 5k (wholesaler fee). Now I know closing costs etc could move this number up or down, but I'm still not seeing the entirely unattractive option to the buyer. Unless, perhaps the comparison is with the potential to purchase the home *after* the foreclosure? where your purchase wouldn't be 130K but perhaps 90-110K effectively increasing your potential profit by 10%?

My apologies if I'm showing my greenery here, but I'd really appreciate your input on exactly how the numbers play out and why, ultimately, this may be a negative deal.

Thanks for taking the time to read!

- Carlos

so to clarify, when I say 130k purchase, given the 100k owed, you'd have to finance 30k and upfront pay 100k cash <-- I believe this is where you run into an issue, as most investors are not going to pay all-cash rather some combination (75/25? finance/cash)?

@Gabriel R. , I trust this is a hypothetical question posed just in case you happen to find this situation, right? You don't actually have a seller at this point.

I suspect you're searching in and around your local area of Pomona. If you found a situation like you described in that area, it would total be worth further investigation. A lot would depend on the seller. Your question, if I may paraphrase, is why would the seller sell to you for $100k when the property could be worth $200k. Two scenarios come to mind.

First, the seller may be motivated to sell quickly. The lower the price, the faster it sells. He may in fact be more interested in clearing his debt and getting outta Dodge than in making anything on the sale. Who knows what moves these folks, divorce, a new job, trying to stay one step ahead of the law, etc. Who cares. It's not your problem. What does the property look like?

This is the more likely scenario. The property isn't actually worth anything more than what is owed on it. As a wholesaler your maximum allowable offer should be based on ARV - investor profits - repair costs - assignment fee. A lot depends on the repair costs.

None of these words take into account that you're looking at foreclosures. I've got to agree with @Dev Horn on this; this market is tricky for new investors. HUD has a lot of new rules about exactly how to deal with distressed owners that could come back to bite you in the butt. Besides, homeowners in foreclosure tend to be a sketchy lot. Emotions often rules the day...and screws up your otherwise great deal. Very frustrating and hazardous!

You're better off finding/creating equity in a more stable market, like REO's or HUD foreclosures, as @Joe Villeneuve  suggests. These guys know what they're talking about. 

That being said, if you actually find a deal like that and it makes financial sense to do it, then do it. I wouldn't worry too much about what the seller gets out of the deal. Perhaps ask someone with experience to partner with you, just to be sure it makes sense and to keep you out of the potholes.

I hope this helps.

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