4 Basic Wholesaling Questions

6 Replies

Hi I am new to wholesaling and have been having trouble finding the answers to these questions.

1.   For both an assignment and double closing, is there anything to protect you from having to buy the property if you can't sell it within the contract date? Like a small deposit to put down in case you can't sell it?

2. People keep saying that they will decide to do a double closing if they know that they will make a lot of money for privacy... but how will they know if this will even happen with the seller if they haven't even signed the contract in the first place, to then go a potential buyer?

3. I read that for double closings that you must go to the title office/attorney on the same date listed in both contracts.  If you set the date for 90 days in the AB purchase contract with the seller and you find an investor that wants to  close within 20 days with an amazing deal, is there any way to close early?

4.  I was reading through a Standard Purchase and Sales Agreement posted on the forums and a question came to mind. If you're doing a double closing with this, who generally gets assigned what costs? If you plan on the investor to be paying the closing costs, do you assign it to yourself in the first agreement?

Buyer Will Pay

A. Closing Costs [ ] Recording fees [ ] Note stamps[ ] Intangible tax [ ] Credit reports [ ] Loan transfer and assumption charges [ ] VA funding fee

B. [ ] Loan origination fee [ ] Loan insurance premium [ ] Loan discount not to exceed_____ [ ] Transfer Tax [ ] Wood Destroying OrganismReport

C. [ ] Appraisal [ ]Survey [ ]Title Insurance Policy __________ [ ]Other_____

Seller Will Pay

A. Closing Costs [ ] Recording fees [ ] Note stamps[ ] Intangible tax [ ] Credit reports [ ] Loan transfer and assumption charges [ ] VA funding fee

B. [ ] Loan origination fee [ ] Loan insurance premium [ ] Loan discount not to exceed_____ [ ] Transfer Tax [ ] Wood Destroying Organism Report

C. [ ] Appraisal [ ]Survey [ ]Title Insurance Policy __________ [ ]Other_________

Tyler,

Welcome!  Glad to have you on board.  Check out the Wholesaling Forum here... 

https://www.biggerpockets.com/forums/93-wholesaling You'll find lots of great information there.  Also, podcasts...podcasts...podcasts!  There are plenty of them with a heavy dose & even focus on wholesaling.  The podcasts are gold.

Now, I'll see if I can answer some of your actual questions, until people that know a whole lot more than me come along!

1)  The laws in each state are different, so I can only speak to what is allowable in Texas.  However, most states allow you to structure your contract in a way that makes sense and works for you as the buyer.  Of course, that doesn't mean the seller has to accept your contract as written.  For me, the most I can ever loose, should something go wrong with a wholesale deal, is my earnest money.  Typically, I offer $500 earnest money.  That's pretty standard.  I also pay a $50 option fee, which I tie to a 10 business day option period.  That means that for 10-days, from the date the contract is fully executed, I can cancel the contract for any reason or no reason at all, and my earnest money will be returned in full.  Option fees are non-refundable, but they do apply toward the purchase price.  I can also write the contract such that it is void, if I am unable to secure financing by a predetermined date.  I've seen contracts with so many contingencies it would be impossible for a buyer to ever default.  I don't like that approach, but I do try to give myself a reasonable degree of protection, while being fair to the seller. 

The bottom line on wholesale deals is...KNOW YOUR NUMBERS.  Learn to analyze the deals.  You can also post the details of deals in on BP to have your numbers double checked by serious pros!  If you get the numbers right, meaning you've got a solid deal, you won't have to worry about not finding a buyer.

2&3) I think you may be a little confused about the double closing process, also known as double escrow. First, don't try to market a wholesale deal, until you have a signed contract to purchase the property. People do it, but it's a shady practice. You don't have to own the property to market it, but you do need to hold a beneficial interest (earnest money) in the property. I prefer to do a straight assignment of the contract, rather than a double closing. Most of the wholesalers I've talked to that use double escrow do it because it creates a really clean transaction, and they like the fact that everything is documented in the HUD statement. It seems like there are some wholesalers that do it because they don't want the investor buyer to know what their wholesale fee is. There are some wholesalers who don't want to do a double closing, because they don't want the seller to see the wholesale fee on the HUD statement.

Look...I haven't talked to any investor that begrudges the wholesale fee.  They understand finding the deal and getting it under contract is a lot more difficult than rehabbing a property.  As long as you leave enough meat on the bone for the investor buyer to make their target, they are happy to pay you for the deal.  As for the seller, I believe honesty and transparency is the best approach.  I'm going to tell the seller I will not be the end buyer.  I'm going to tell them that I am going to help them solve their problem and part of that will be to find someone to buy their property AS IS.

You don't have 2 different close dates.  Although, you technically could be at the closing table with the Seller (A) and the Investor Buyer (C) on 2 different days, just due to scheduling.  However, it would typically be back to back days.  A lot of the time the closer completes the A to B (that's you) transaction and walks into a different room to complete the B to C transaction.  Most sellers want out...the sooner the better.  Most investors want the deal...the sooner the better. 

4)  Again, I try to do assignments.  However, as the B part of the transaction, you may have to pay for a title policy and some doc prep & filing fees.  You have no origination costs, because you're not funding anything.  All the closing costs would be paid by a combination of the Seller & Investor Buyer.  Typically, if you're working with a distressed property owner, they are going to want as much of the closing costs paid as possible.  Investors understand this and have generally assumed those costs in their financial model.

@Hattie Dizmond   gave you some good answers. 

I'll try to make the basics of the process clear so that may help you understand the answers. 

You put a property under contract. You can then assign (the same as sell) that contract. You are not actually selling a house you are selling your contract. You have a separate agreement with your end buyer to buy your contract. The end buyer must abide by all conditions of the first contract  that is what they are buying from you. 

Or you can double close. You get a property under contract. You then write a new contract with your end buyer at whatever terms you can negotiate. The two closings do not have to be at the same time or place. Once you have bought the property you can resell whenever you want. 

However what most people mean by double close is have the closings at essentially the same time and use the end buyers money to pay the seller for the first deal. Many title companies do not like to do this and it may be illegal in some states or certain circumstances. ( search for Wet vs Dry closings)

What about going with the wholesaler to the closing and buying it together and then he Quit Claiming it to you at end. With an attorney of course?

Thank you all so much! I really appreciate the fast replies.  I understand it a lot better now.  I am currently speaking with a buyer and going to be talking about putting it under contract this week so I wanted to have this all straight in my head.  I had called a few title offices but not one does assignments/double closings. I read that if I called them up that they would dismiss me quickly but I figured I would give it a shot anyways.  I have one potential cash buyer, and would ask if he would be interested After me and the buyer to sign the contract but before we actually sign.  I just don't have a title office and don't know where to find one.  I don't know any other investors in my area besides this one buyer I found off a bandit sign.  Does the title office have to be in my town? I am not too far from NYC, but it may be a hassle to get the seller to come in.

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