Balance of Loan from Wholesale Deal - Who Pays?

Question

Hello all-my name Mark Braun and I am new to BP and more importantly, investing (wholesaling).  Anyway, I undertand the basics of wholesaling but the one thing I cannot reconcile is who pays the balance of the loan once the wholesaler closes the deal with the seller?  For example, if a seller owes $150K on a $200K loan and I closed  the deal for his equity, there is still $150K outstanding.  Who pays that?  The buyer-investor or the seller?  Thank you.

Mark Braun · Answer

Wayne - thank you for the reply.  The "who pays the balance" has been my question all along.  Someone is going to have to cover that.  It is not the seller (whole reason for the wholesale).  It isn't the wholesaler or none of us would be doing this.  The only one has to be the buyer-investor.  The blank in my mind is how do I set up the deal so that a buyer-investor feels the price I am asking for is legitimate and worth his/her investment (and doesn't create a short sale situation).  I don't know the right way to set this up this fictitious scenario so that I get what I want (good assignment fee), the seller gets what s/he wants (out from under the property) and the buyer is enticed to buy knowing there is a strong possibility s/he will make a profit after rehab, PAYING THE BALANCE of the note, and selling (assuming they don't hold the property).  Can you (or someone) please lay out the numbers for me?  It's almost a fill-in the blank (of course the blank is between my ears).  Thank you.  Mark

Roland Paicely · Answer

The balance is paid through the proceeds of the sale.  Otherwise the sale cannot happen and title cannot be transferred.  Example:  If the buyers is buying the house for $180K.  She will bring a check to closing for $180K.  From that the closing agent will send $150K to the lender so that the loan can be paid off.  This of course is the simplified version.  There are other parts to it.  But that's the general idea.

Mark Braun · Answer

All - thank you for the responses.  I think I have this figured out.  You all are great and I appreciate your clarification.  VR, Mark

Dell Schlabach · Answer

@mark braun    in order for this deal to work with the numbers you are proposing, the bank would be eating the 83k shortfall, as @Wayne brooks mentioned.  Ther bank isnt going to take that kind of a discount. In other words there is no deal here to be had to wholesale. Homeowner owes too much.

Wayne Brooks · Answer

HUH?

ARV=After Repaired Value, same as comp.s, if they are in good retail shape.

Rehabbers buy at about 70% of ARV, less repairs (their profit and holding costs are all within this 30%). In this case $140k minus $40k=$100k. If you want 10k, then you have to buy for $90k

In this case with a loan balance of $173k this is all irrelevant.  It would be a short sale (who do you think is going to pay the $83k short fall?) and the short sale will never be approved at $90-$100k.

Mark Braun · Answer

All - thank you so much for the rapid responses.  They have all been very helpful but I need a little more help (if you don't mind).  See below:

I likely need a little help with my math here so please help me if I need some adjustment.

• Comp Value:  $200K
• Equity:  $27K
• Loan Balance:  $173K

Expenses:

• ARV (70% of comp):  $140K
• Rehab: $40K
• Buyer Profit (30% above comp value):  $60K
• Assignment Fee:  $10K
• 60-day carry until closing:  $3000 ($1500/per month)
• Wholesaler Final Offering Price:  $27K (covers equity and all of expenses)

So, from this, I will close with seller for $27K.  Here’s the BIG question:  For how much do I offer this property to a buyer-investor?  This is where I am stuck as the buyer has to cover the $173K, my $10K assignment fee and make certain he can cover the rehab, carryover, and achieve a profit. I am thinking I close for $183K.  Am I close?

Again, thank you so much for the help and understanding.  VR, Mark (719.425.7852 or presinvesting at iCloud.com

Jade Davis · Answer

I learn something new everyday. Good question.

Mark Freeman · Answer

@Mark Braun

The purchase price has to be more than the outstanding loan or you have a short sale situation. Assuming there is equity in the property at the purchase price, the buyers funds will pay off the loan first and whatever is left over after fees goes to the seller.

Balance of Loan from Wholesale Deal - Who Pays?

Most Popular Reply