Ready to Do my First Wholesale. Seller is Ready To Sell

23 Replies

Hello Biggerpockets!

 I have found my first seller who is ready to sell. They have lived in the property for many years and I do not believe they have a mortgage. 

I know a little bit about wholesaling however I do not know everything. Can someone tell me which contracts to use, how much earnest money I should submit with my offer, how long should my due diligence period be, how do I find someone to assign the contract to, what disclosures I should use in my offer. 

The property is located in Cambridge Ma. and currently assessed by the town for $850k. I am not sure how much I should offer however on the open market I am sure top dollar would yield around 1.2 million. The property is in need of massive updating. Or possible tear down and rebuild. 

Thanks Biggerpockets!

How much are you getting it under contract for? 

have you walked the property or had someone to walk the property so you have a rehab bid?

Do you have a buyers list of cash buyers?

are you locking the property up under an LLC?

Hey @Rich Hupper congrats on your first potential deal!

I would always use a state approved real estate contract for any of your deals. Down here in Texas, I use the Texas Real Estate Commission (TREC) contract. When you fill in the section on the first page that says "buyer" use your name or your LLC name and then write "and/or assigns" after that. For instance, my contracts always list the buyer as "NextEra Homebuyers, LLC and/or assigns".

I don't use any out clauses in my contracts, but as a beginner, that may be a wise thing to do while you're still learning. You could add something like "Subject to partner's approval". Just be aware that some sellers may call you out on this, and other wholesalers that are competing against you for the deal may bring this to light with the seller.

You should be able to find buyers for your deals at local REIA groups, right here on BP, or by finding real estate investment groups in your area on Facebook. I've sold many deals to people that I've met on both BP and Facebook.

You need to know what the comparable sales are for that neighborhood. To do this, you'll need to connect with somebody that has MLS access, normally a Realtor. Once you've figured out what the ARV is on the house, you'll need to accurately estimate how much the repairs will cost to present to your potential buyers. In Dallas, my deals are going for up to 80% of the ARV minus repairs, but your market may be different.

You should put down as little earnest money as possible. If the seller accepts $10, then put $10 earnest down with the title company that will be handling the transaction. I usually put $100 down, just so the seller knows I do have a little skin in the game.

Congrats again, let me know if I can help with any other questions.

@Jason McDougall   this is just shocking to me.. 10 dollar EM  100. EM holy cow

partners approval... go out and try to flip a property but do not even know the basics.

No wonder the states are starting to crack down on this activity...

But its America right

Hey @Jay Hinrichs

Sorry that you didn't agree with my post. Would you mind helping Rich out by answering his questions with how you would handle the transaction? It would probably help him to have a different perspective.

Thanks!

@Jason McDougall   I am not your guy for this.. I feel that most wholesaling is illegal.

But I am not the wholesaling police so I will in no way encourage or assist in this stuff I think it ruins the business .  If you want to sell real estate you don't own get a freaking license .  there is a reason there is a real estate industry to keep folks like this that have no clue from harming those innocent sellers and buyers.

Wow I thought this was a more supportive forum. I am in no way shape or form trying to take advantage of anyone. I had no idea wholesaling was illegal. There is entire section of this website devoted to wholesaling so I thought I would ask the question. It appears maybe I should see if my seller would like to list his home on the MLS rather than me wholesale it to an investor.

Rich, the key here is transparency. If you are doing a wholesale deal then that means you are actually taking title (closing) at a discounted price then taking it back to buyers at a higher price. If your intention is to assign the contract then let them know what you are doing because more than likely they haven't a clue on how to move it fast and wouldn't mind you doing it anyway, but still let them know so you won't run into problems. 

Hi Rich - wholesaling is a legit business when done correctly. There is a need for wholesalers just like there is a need for licensed agents to list a house. However, the problem is that too many wannabe investors get into wholesaling without knowing what they are doing? The get all excited about putting a house under contract but have no exit strategy. You can search hundreds of forums that look like this "Have house under contract- now what?" Well, figure out the now what part before you put the house under contract. 

Before you even talk with a seller, I would recommend you have these things figured out:

1- Build a buyers list in your area. Know what your buyers are looking for, what they are willing to pay, and what condition property they want to buy. 

2- Understand the real estate market in your area- how to figure out the market value of a property. Who is buying there, etc. These is where having a good relationship with local realtors is key.

3- Understand what rehab investors in your area are doing and the cost of the rehab. Speak with local investors to get this figured out. 

Once you feel comfortable that you can put a house under contract at a price (relative to it's condition) that an investor would want to buy- go find your sellers. When you are with a seller, be very transparent about what you do. I let them know that I work with local investors and I find properties for them. I let the seller know that the investor pays me to find them houses. If they don't like that, I refer them to 2-3 realtors that I know in their area. But most times, there is a specific reason they want to use my services and not a realtors- need a quick sale, the condition of the house, etc. In fact, my realtor has given me referrals for properties that he knows won't sell quickly on the MLS. He gives them the option "I can list it in its current condition but it may take some time to sell. Or you can work with Adrien who can network with his cash buyers and probably get it sold faster but maybe at a lower price. Which method works best for your needs?" Focus on solving the sellers needs and everything works out for the best of all parties.

@Rich Hupper  You need to run your numbers much better to even attempt to put the property under contract  If you dont know how much a rehab is or if it needs tear down and rebuild you will be way over on the arv. I see that you are a real estate agent so I am sure there are not many buyers who would accept $100 emd much less on a property that sells for $850k. 

Lastly you have to get the permission of your broker to even attempt a deal .Do you have the funds to go thru on a deal like this? It seems to be a good market analysis and rehab estimate presented to the buyer would get you a listing and you would make more money with less legal concerns for your broker . The skills of wholesaling are similar to a realtor (comps,comps,comps)plus you have to know your rehab costs cold and have end buyers or  joint venture partners lined up  to get the deal done 

Originally posted by @Adrien Chabot:

Hi Rich - wholesaling is a legit business when done correctly. There is a need for wholesalers just like there is a need for licensed agents to list a house. However, the problem is that too many wannabe investors get into wholesaling without knowing what they are doing? The get all excited about putting a house under contract but have no exit strategy. You can search hundreds of forums that look like this "Have house under contract- now what?" Well, figure out the now what part before you put the house under contract. 

Before you even talk with a seller, I would recommend you have these things figured out:

1- Build a buyers list in your area. Know what your buyers are looking for, what they are willing to pay, and what condition property they want to buy. 

2- Understand the real estate market in your area- how to figure out the market value of a property. Who is buying there, etc. These is where having a good relationship with local realtors is key.

3- Understand what rehab investors in your area are doing and the cost of the rehab. Speak with local investors to get this figured out. 

Once you feel comfortable that you can put a house under contract at a price (relative to it's condition) that an investor would want to buy- go find your sellers. When you are with a seller, be very transparent about what you do. I let them know that I work with local investors and I find properties for them. I let the seller know that the investor pays me to find them houses. If they don't like that, I refer them to 2-3 realtors that I know in their area. But most times, there is a specific reason they want to use my services and not a realtors- need a quick sale, the condition of the house, etc. In fact, my realtor has given me referrals for properties that he knows won't sell quickly on the MLS. He gives them the option "I can list it in its current condition but it may take some time to sell. Or you can work with Adrien who can network with his cash buyers and probably get it sold faster but maybe at a lower price. Which method works best for your needs?" Focus on solving the sellers needs and everything works out for the best of all parties.

Adrien,

You forgot the most important thing, learn your respective State's real estate licensing laws and regulations! REI is not an overnight get rich quick scheme that so many Gurus teach.

Nick

Rich, welcome.

Lots of good advice here.  Advice is always worth what you pay for, so be cautious.  So...

It sounds like you could use a little more training in the wholesale business. It is an excellent entry into REI because it is low risk and low cost, but it's just another job. There is a lot of free or very inexpensive training available (PM me). Try the training materials here on BP or give YouTube a shot. Way more than you can ever absorb there. Or you might consider finding an experienced wholesaler in your area at the local REIA to work with on a joint venture or two. The hard part is always finding the deals.

Wholesaling is legitimate as long as you do not present yourself as representing the seller or buyer without a license.  There are many really successful wholesalers who have made a ton of money every year.  When you have a property under contract, you have "equitable interest," which entitles you to market the property on your own behalf.  That is how you become "legit."  Just always remember you can represent only yourself if you are not a licensed realtor.

Finding buyers first is commonly called "reverse wholesaling."  I think most successful wholesalers find their buyers first and look for properties that fit their buying criteria.  Then find the properties that fit and market to them.  On the other hand, if the deal is a good one, buyers will respond to your marketing.

Good luck.

Hi @Rich Hupper !  Long time no talk, and welcome to BP.  

As a local rehabber / developer, and a former wholesale "pro", AND as a licensee, happy to help in any way I can.  There's also a bunch of meetups / REIAs I'd invite you too, so you can network with fellow local rehabbers / wholesalers - most of what I know today, I learned LOCALLY.  

Check out a previous post of mine where I linked to my blog, I did an article specifically on What NOT to do as a Wholesaler & Licensee...might give you some basics on the legal stuff (disclosure, etc)  link is here:

http://aarealestatementor.com/investing/licensee-investors-listen-up-how-not-to-handle-a-deal/

As many said above - having a BUYER already lined up, or at least having a buyers LIST is your first step in wholesaling.  There are a bunch of us on here that are buyers, and I rely heavily on wholesalers in the area for my deals.  I try to do 15-20 a year.  

I'm happy to help as I can, though I'd strongly suggest reading a lot more online to get some basics down, and then coming to a local REIA meeting to fill in the blanks - you can get a TON of info without paying any $$ just by connecting with us here.

Looking forward to seeing you at a meeting.  As a shameless plug - hard money lender @Ann Bellamy , @Daniel Stroe , Julio Vega and I run a free networking event called Black Diamond, we're having a party tomorrow night at Leo's Restaurant in Worcester, at 6PM - if you can make it, we'd love to have you.  

@Rich Hupper , the clue to what this one might be worth to an investor is in your last paragraph: "The property is in need of massive updating. Or possible tear down and rebuild".

To me this means that the investor value is not one dollar more that what a similar vacant lot would be worth; less the tear-down costs. Then, they would work DOWNWARDS to make it worth their while vs another vacant lot! Cheers...

Wow 

You all have been incredibly helpful. I am really glad I asked the question. I greatly appreciate everyone willing to educate me on the matter. I truly do not want to do anything unethical that could hurt my image. I have been an agent for 6 years now and have not had one ethics complaint or legal case. I do not want to start now with doing my first wholesale! HAHA. 

After speaking again with the homeowner and touring the property. It is definitely not a tear down. It could use updating. The bones of the property are sound. ARV for this neighborhood 1.8M ( looking at solds over the past 6 months very close by ). Also the actual assessment of the property is $966,000.

I discussed with the homeowner his the pros and cons to retail and wholesaling

Wholesale

Pros: Quicker closings, buyer will not ask seller to fix things, save 5% commission, less financing problems if any, 

Cons: Sale price below market value, less exposure, less buyers

Retail

Pros: Maximum exposure, possible multiple offer situation, fair market value sale price if not overpriced from the get go.

Cons: Many people trudging through your home, 5% commission, possibility of working with buyers who cannot afford it, financing issues, longer closing dates, seller concessions, possibility of property being tied up with a buyer who cannot perform due to a home to sell contingency. 

I know I am probably missing many other things but this is what we discussed.

This property would be a great flip for a contractor to buy at 1.2 M. I am not sure how much rehab costs would be. However the electrical looked up to date, roof looked good, It is mostly just cosmetic.

Rich,

I am also new to this in MA.  Sounds like there is some good money to be made, May I suggest finding a decent Wholesaler and go 50/50 with him on the profit?  (For the record that is not me).  It might prove to be a great learning experience for you, and still make some money at the same time.  I have been reading / listening to everything I can get my hands on with BP, and Wholesaling is only as shady as you make it.  Don't listen to the negative comments, get out there and make it happen.

@Matthew Forbes

Hi Matthew

I believe if the homeowner wants to go the wholesaling route that is exactly what I am going to do, find an experienced wholesaler to partner with on my first deal. That way I can do it right and make everyone happy!

@Rich Hupper Don't let @Jay Hinrichs negativity get to you bigger pockets is a great sight for those looking to learn about real estate investing. Real Estate agents will always offer more because there commission depends on it but they are shocked when the reduced the price 10 times before sold it at a price a skilled investor could have instantly told you it was the best price to sell it at. Old Brokers live in a dinosaur era and are stuck in an old fashion mind set. Realtor have there place in the business as do Wholesalers. No Realtor would deal with hoarder houses, someone facing foreclosure, or with massive liens against the property.

@Rich Hupper definitely team up with an experienced wholesaler in your market. Your numbers at a glance sound off. Your purchase price should approximately be = (ARV x 65%) - repairs - assignment fee. This will give you your Maximal Allowable Offer to the homeowner. If any of this sounds like martian to you, definitely team up before you do your seller and yourself a disservice.

No disrespect, your numbers sound more like what a Realtor would give to an investor looking for their first property.

Definitely get approval from your broker & be sure to disclose to your seller that you are a Realtor, but you won't be representing them in the transaction or whatever your broker wants you to do.

There's tons of free info on here regarding wholesaling, absorb it.

@Manny Cirino   Manny my point was here you have a first timer trying to knock down a 800k deal and people telling him to use 10 dollars or 100 em like that is real.

there are certainly old realtor's I guess I am one..  But right now I have 2 hoarder houses in contract.. I bought MHP last sping full of White trash tweakers and meth heads.. cleaning It up.. and I know quite a bit about title and how to clear items... along with the deals I do in SC that have all sorts of family and estate issues.. some taking a few years to settle.

But your right some brokers just sell houses and don't deal with the weird deals out there but that's not me.. I love that stuff.. and because its not financeable most times and I have cash we swoop in and do pretty well.... I have yet to buy a home from a wholesaler in my 17 years in our market they just don't bring any value here I can get much better deals on my own or short sales on MLS..

But like I said its America and to each his own .. In every situation you will have a certain amount that can make it and do make it NO question about that I think in wholesaling its about maybe 3 to 5% that try it actually do it for more than a year or so and or make a living at it... the one's that excel at it no doubt do very well.. I know a few like that here in PDX  but they buy their product in almost all case's then resell

Hey @Rich Hupper .  I'm a local Rehabber/Builder/Wholesaler as well.  I think that's a great idea to team up with an experienced wholesaler.  Or, better yet, find an experienced rehabber/builder that will purchase the property and help you through the process.  I don't invest in Cambridge, but I'm happy to help.  I offer my purchase contract on my blog for free.  The URL is in my signature.  

How did you come across this deal?  Cambridge is a good distance from Wilmington.  If you find anything up near Wilmington, I'd be happy to work with you.

@Justin Silverio Thanks for your help Justin. I found out about the deal through the owner's daughter who I met out and about. She gave me his contact info and I reached out to him. He said it was a tear down however after meeting with him it clearly is not. As soon as I can get him to tell me he is ready to move forward with a wholesale I will definitely let you know and we could partner on it. 

Otherwise I am going to list it on the MLS.

I don't think I saw any place where you said what you think you would be able to put it under contract for.

That is pretty much the #1 key factor.  If they say they want to get $1.3M and you think it tops out at $1.2M you can take a stab at the listing but no chance you can wholesale it.

Also since you said you have no idea what the rehab would be don't stretch on the ARV that a legit investor might pay. What someone MIGHT pay off MLS is much different than what an investor looking to buy whole sale deals will pay.

What they want to sell for also would be a factor in what want to do. If you are looking at making $200K wholesaling (which probably starts getting into the "can you sleep at night" taking that big of a chunk of this guys equity) then that is the way to go to realize that type of profit. If you looking to do like $40-50K just list it. If you can really sell it for $1.2M to a wholesale buyer then get a listing agreement and a delayed MLS form and shop it to your buyers for a couple days to see if you can double end the commission. Even if a crappy 50/50 broker split if you have a 6% commission you are looking at almost $40K with no risk.

Of course do you have that buyers list to shop it to as either a wholesale or a pocket listing? If not you will need to both get it cheap enough to make it worth wholesaling and still leave enough meat on the bone to be enticing to someone to take on your first attempt at this. Also keep in mind that most rehabbers will have no ability to take down a deal of that magnitude. You need a lot of cash or big time private investors to put over a million dollars into a single deal. That or the deal does have to be so good that it will work with a HML (and still probably will need in the $300K range to get that done).