When do you use hard money in wholesaling?

[Account Closed]

Hello,

Newbie question here, would really like to hear your answers, thanks in advanced.

I found a home through a referral. The home is in complete shambles (no plumbing, no electrical, water damage etc.) about $150K in repairs are needed.

The home is in a great location and would sell for a large profit if fixed up. 

I have made contact with the owner and we agreed on a price of $200K. I put a purchase agreement in place with $500 in earnest money. The seller is wanting $3,000 in earnest and 30 days. The seller will not move on this.

I was looking for advice on taking out a HML for $200K, purchasing the home and then selling the contractual rights for $230-$240K. If anyone has insight on this I would love to know your thoughts.

Thank you,

Brian Sigmon

[Jason Hirko]

@brian sigmon There are a couple of things to consider here. First, if you're buying the place for $200k and not going to put any rehab into it yourself, you will likely be looking at a $150k loan and bringing $50k to the table (75% LTV). Second, if you purchased it with hard money, there would be no contractual rights to convey. You would own the property and would convey title to it. Plenty of wholesalers do it this way - they close on the property and spend a few hundred bucks cleaning it out and then they can have as many people inspect the house as they want without the seller objecting, etc. However, you would then be selling your house, so there would be two sets of closing costs involved and you would have to figure out who all is paying them (the seller, you, the buyer, or a combination). Third, it sounds like you made an offer that wasn't accepted by the seller, so I doubt you have anything to convey at this point, since you said the seller insists on $3,000 in EMD. You could put that on the line and try and assign the contract, but the seller is apparently (and smartly) keen to what you are up to. That would be your risk to take. Finally, I'm assuming this is your first hard money loan, so you'll probably pay 3+ points ($4,500) and fees ($1,500+) and at least a month's worth of interest ($1,500+). I would ask myself if I could get much more than an extra $7,500 in profit by closing on it myself and then reselling it, and if not, it makes sense to get it under contract and assign.