Is most wholesaling to investors only, not consumers? My aunt wants me to find her a house, and she says she'll pay me. Do I wholesale? I'm not going to sell it for retail to her. I have two other friends of friends who want to buy and live in the house. Do I just double close? Is wholesale appropriate to consumers? I'm in NJ.
I really don't like the term wholesale in RE! It's something I'm sure some guru came up with and everyone jumped on the bandwagon. You buy a property and you sell it, period. The kind of deal doesn't even need a name. Who you sell it to is not important either. If you have a dump and you sell it to some guy who will fix it up, just because there is a process between the buyer and the highest and best use end user of the property which is accomplished by a middleman buyer/seller, that got the name as a wholesale deal, doesn't really matter. If you have a house that needs repairs but you don't do repairs and you sell it to someone who intends to live in it, that is to the end user, that's a retail deal, as discussed now in investor lingo only, would you change the name of your deal if that buyer fixed it and sold it 90 days later, does that matter to you? No, you sell properties to who you can, when you can at the highest price you can, taking into consideration the type of property, it's current value in the condition it is in when you seel it, that's with all sales.
Back to your aunt, is she the end user? If she is, forget the wholesale jargon. You're buying a property to sell to an end user, you're flipping the house. If she has cash, you can find any house you want to, put her and yourself on the contract as buyers....(if she will pay you your fee later on when you deed your interest in the property back to her). Then just buy it! You can do the same with your friends and enemies as well!
As to fraud and selling, I don't think you title clerk understands what the fraud angle is, where you are cheating the bank out of saying it's worth X dollars and you sell it immediately for Y dollars is not fraud. There are other elements to this to make these transactions fraud. If you make improvements to a property and sell it for more, it's not the same property and there is not a leg for anyone to stand on to claim fraud. There is no law against finding someone willing to pay a higher price for anything in this world than what you paid for it! It's when you sell something you don't own, not in title to and you don't acquire the property in the manner you disclose, IMO.
When I bought my last REO, end of last year, the bank wanted to know if this was an investment property or if I intended on living in it. I said I intend on living in it, but anything I have is for sale! That's the answer they got and they had a 30 day hold on it I believe (that I did not pay any attention too, I was the quickest purchase transaction tyhe closer had ever had...I skim and sign as quickly as I see the signature line! (That's another subject, but I can always hook'em if they pull something, another story) That was fine with me. This was with Lenders Services and I bypassed the Realtors and talked directly with them on the deal.
If I had wanted to sell the thing, I would have entered into a contract the day I bought it, gave possession prior to closing and closed 31 days later! Not a thing they can do about it, period!
You can follow what Jon and Scott said above too to spin the house off to your Aunt of friends as well. I'm not saying the terms are incorrect, but these are concepts and stratigies that are named to convey how properties are turned over, getting caught up in them as if they have some weight or rule or law is not correct, you don't need to go there.
A double clsoing is simply when you and your buyer show up at closing when you buy it (or close to it) and the money used from your buyer is used for you to buy from your seller, this practice is now considered a fraudlent act since you're really not in title when you sell. Anyway, this is an arrangement that can also be used if you are a real cash buyer and you are selling immediately to someone else, the reason to do this is that the title company only does one title search and may give a break on other charges in closing as well. Doing a double closing has nothing to do with any investor strategy other than it is a closing process that can be used to accomplish simultaneous closings, which is not illegal. By the way, you can buy on a promissory note with 100% financing from a seller, owner occupied home from Mr. Homeowner and then use your buyers money to payoff that note five minues after you made it!
These are basic transaction functions. They are simply tools in the box to use when buying and selling real estate. How you sell and who you sell to should never be thought of as some limiting market, like an oil wholesaler sells ony to retail gas stations, not what is meant at all. For all you know, your Aunt might get a better offer the next day and decide to take a profit! When the IRS puts Real Estate Wholesale Investor or Retailer of Real Property in the IRS tax code as a profession, I'll change my mind (LOL).
I'm sorry your thread is the one I picked to ramble on with, I'm sure these points could have been made shrter as Jon and Scott did, fine explanations guys!
If they're paying cash, you'll be fine. Financing is where your life gets difficult. Lenders will do a title search and discover you (the seller, typically in wholesale deals) are not the owner. They may not like that. They may have seasoning requirements that require the seller to be on title for a specific length of time. They may also use the price you (wholesaler) pays rather than the price your end buyer pays as the value. That means your buyer will have to pay your fees in cash.
So with consumers as the end buyer who are financing, it's better to do a double close?
Thank you.
*Steve beat me to it...
Wholesaling is the act of buying or taking control of a property with the intent of selling or passing control of the property to someone else. Doesn't matter if the someone else is another investor or owner occupant (OO).
So, if you put a property under contract and assign the contract to another investor or an OO, that's wholesaling. Likewise, if you put a property under contract, purchase and resell it (with either a simultaneous or double close), that's also wholesaling.
A double close is just a method of wholesaling where you purchase the property and then immediately (within a couple hours) resell it to someone else. It's one day to wholesale a property.
As others have pointed out, a double close requires you to purchase the property and then to immediately resell. If the person you are reselling to is getting financing, you need to make sure that the lender is okay with the fact that the property is going to be bought and sold within a couple hours before the loan is made.
Many lenders are not okay with this, as they want to know that the last sale on the property was at least 90 or 180 days ago (not two hours ago). Some lenders will be okay with it, but you need to verify that before you sign the contracts.
This is why cash buyers (whether they are investors or OO) make double-closing easier...they don't have to make their lender's happy...
Does that make sense?
First, title seasoning has nothing to do with you. It is a requirement that a lender has that says the last sale of the property needed to be at least x days ago (generally x is 90 or 180).
So, a lender might say, I won't make a loan on a property if the current owner (that it's being purchase from) hasn't owned it for at least the past 90 days.
With a double close, you are the "current owner" prior to the sale, and you will have only owned the property for a couple hours (not 90 days). So, lenders won't approve that kind of deal to lend against.
Now, assigning a contract is the act of taking control of a property (via a contract) and passing it to another buyer.
With assignment, you *never* actually own the property.
Because you don't own the property, the "current owner" is whomever you took control of the property from, and as long as they've owned the property for 90 or 180 days (or whatever is required from the lender), there shouldn't be any issues.
I've heard the best strategy is to wholesale to investors and double close with owner occupants, because wholesaling is less possible trouble with an investor than OOs. For the sake of argument, it's just a cash buy.
If a wholesale or double close deal goes through with a lender, how long does it take to get my money? And, this is when I just get my money in cash, right?
Ok. I just spoke to a title company guy. NOW, I see why it's important to have cash buyers! On financed lender deals, banks want as much money as they can. So if you're double closing or assigning on financed deal, it's going to be harder; unless, of course, the bank says it's ok when you disclose it.
Title guy told me you can get into trouble with fraud if the banks find out you didn't disclose that you were buying and selling. At this point, I realize: that's why it's important to have a cash buyer and a motivated seller (that's not a bank).
He also said he deals in buying and selling, not double closing, The best thing to do is use transactional funding when buying and selling. It looks like a clean transfer.
The real answer, IMHO, is that if you're dealing with OO, conventional financed end buyers you simply acting as a real estate agent. Get your license, sign up with a broker, and collect your commissions. Very simple, totally above board and no legal complexities to deal with.
I really don't like the term wholesale in RE! It's something I'm sure some guru came up with and everyone jumped on the bandwagon. You buy a property and you sell it, period. The kind of deal doesn't even need a name. Who you sell it to is not important either. If you have a dump and you sell it to some guy who will fix it up, just because there is a process between the buyer and the highest and best use end user of the property which is accomplished by a middleman buyer/seller, that got the name as a wholesale deal, doesn't really matter. If you have a house that needs repairs but you don't do repairs and you sell it to someone who intends to live in it, that is to the end user, that's a retail deal, as discussed now in investor lingo only, would you change the name of your deal if that buyer fixed it and sold it 90 days later, does that matter to you? No, you sell properties to who you can, when you can at the highest price you can, taking into consideration the type of property, it's current value in the condition it is in when you seel it, that's with all sales.
Back to your aunt, is she the end user? If she is, forget the wholesale jargon. You're buying a property to sell to an end user, you're flipping the house. If she has cash, you can find any house you want to, put her and yourself on the contract as buyers....(if she will pay you your fee later on when you deed your interest in the property back to her). Then just buy it! You can do the same with your friends and enemies as well!
As to fraud and selling, I don't think you title clerk understands what the fraud angle is, where you are cheating the bank out of saying it's worth X dollars and you sell it immediately for Y dollars is not fraud. There are other elements to this to make these transactions fraud. If you make improvements to a property and sell it for more, it's not the same property and there is not a leg for anyone to stand on to claim fraud. There is no law against finding someone willing to pay a higher price for anything in this world than what you paid for it! It's when you sell something you don't own, not in title to and you don't acquire the property in the manner you disclose, IMO.
When I bought my last REO, end of last year, the bank wanted to know if this was an investment property or if I intended on living in it. I said I intend on living in it, but anything I have is for sale! That's the answer they got and they had a 30 day hold on it I believe (that I did not pay any attention too, I was the quickest purchase transaction tyhe closer had ever had...I skim and sign as quickly as I see the signature line! (That's another subject, but I can always hook'em if they pull something, another story) That was fine with me. This was with Lenders Services and I bypassed the Realtors and talked directly with them on the deal.
If I had wanted to sell the thing, I would have entered into a contract the day I bought it, gave possession prior to closing and closed 31 days later! Not a thing they can do about it, period!
You can follow what Jon and Scott said above too to spin the house off to your Aunt of friends as well. I'm not saying the terms are incorrect, but these are concepts and stratigies that are named to convey how properties are turned over, getting caught up in them as if they have some weight or rule or law is not correct, you don't need to go there.
A double clsoing is simply when you and your buyer show up at closing when you buy it (or close to it) and the money used from your buyer is used for you to buy from your seller, this practice is now considered a fraudlent act since you're really not in title when you sell. Anyway, this is an arrangement that can also be used if you are a real cash buyer and you are selling immediately to someone else, the reason to do this is that the title company only does one title search and may give a break on other charges in closing as well. Doing a double closing has nothing to do with any investor strategy other than it is a closing process that can be used to accomplish simultaneous closings, which is not illegal. By the way, you can buy on a promissory note with 100% financing from a seller, owner occupied home from Mr. Homeowner and then use your buyers money to payoff that note five minues after you made it!
These are basic transaction functions. They are simply tools in the box to use when buying and selling real estate. How you sell and who you sell to should never be thought of as some limiting market, like an oil wholesaler sells ony to retail gas stations, not what is meant at all. For all you know, your Aunt might get a better offer the next day and decide to take a profit! When the IRS puts Real Estate Wholesale Investor or Retailer of Real Property in the IRS tax code as a profession, I'll change my mind (LOL).
I'm sorry your thread is the one I picked to ramble on with, I'm sure these points could have been made shrter as Jon and Scott did, fine explanations guys!
The paragraph above is one thing I want to address, though...
Generally, what you refer to above (having the seller, buyer and end-buyer all show up to closing, and using the end-buyer funds to finance the buyer part of the sale) is called a "simultaneous closing," and you're right that you don't see them much anymore.
A "double closing" is generally referred to when the buyer uses his own funds to close the deal with the seller, and then the end-buyer purchases the property from the original buyer with his own funds. This generally occurs at the same closing tables (or within a couple hours), but are two separate closings.
Double closings are very common, and most title companies I know of are happy to do them (though most want to see the transaction disclosed in writing to all parties).
No, the opposite. If it is an investor who is paying cash you can do a back to back close much easier than if it is a retail buyer.
Everyone is confusing the terms a bit.
People have diff ideas of the term "double closing".
In my mind and in the phrasing of most title companies I have worked with there are:
"Simultaneous Closings"- A one transaction A-B-C closing where the C funds pay off the A buyer. These are functionally extinct. They are not "illegal" by statute nor are they always fraudulent. But they ain't going to happen anymore. Period.
And there are "Back to Back Closings" are when 2 separate transactions take place within the same day. Funds are kept separate, often through the use of transactional funding. These are happening commonly though many people still consider them ripe for potential fraud and are afraid of them.
PS. By the way, I have posted this before, if you have a seller that will accept cash for his property immediately after closing (no quicker any other way) the seller can sell with a note and you sign the note, then sell the property, get the funds from C and then payoff the note. Double or simultaneous, which ever, the title company will accept that transaction over the objections of funding the first transaction first. Bill
Now, the reason why wholesaling is ok. I'm only selling my rights to buy (option contract) the property to an end buyer.
Yup, that's a double close, and is perfectly legitimate...
Those are two methods of wholesaling properties, though there are plenty of other methods as well.
Sorry I arrived so late to the party, but there's some hot air in this thread that I need to let out.
I have personally done and STILL do these transactions on a regular basis.
Yes, there are many title agents out there that will not do them, but there are absolutely title agents that will. It is not a common transaction for a title agent to deal with, and that is why most of them don't want to
First let's talk technicals. You do NOT own a property when you pay for it. To "own" meaning having full rights to it. You do NOT even own a property when you have received a deed for it. You only technically own a property (outside of some owner occupant situations) when you have FILED an executed deed in the official public records. Having buyers and sellers sign documents out of "proper" order is a technicality that most title agents across the country do on a daily basis. This is the whole point of having an escrow agent/company that holds funds/papers until everything is fully executed/funded, and then releases/files everything in proper order.
Splitting hairs over second by second timing of execution of documents is stupid. I have never seen or heard of anyone pursued legally for a "simultaneous closing" or however you want to phrase using the buyers funds from the second closing to fund the first closing. If anyone has any actual statutory or case law to back up any of these allusions to fraud I am EXTREMELY interested in researching them.
This whole argument is based on the fallacy that funding is the key to ownership. That if and when you fund the transaction THEN you own the property. That is completely FALSE. Funding is a procedural step to the process of taking ownership in real property, but it is NOT the sole or final determinant. You can pay for a property a hundred times over and still NOT own it. You don't own it when you've paid for it. Now you might have legal recourse against whoever you gave your money to, but you still don't own a piece of property just because you gave someone money for it. Funding is not the test of ownership.
Bill, I really hope you have something solid to back up your claims of fraud. Please enlighten me about these crack downs on this closing strategy.
JO,
Just the same as you have received several opinions here. I would recommend that you meet several title guys or gals and go with the one you feel the most comfortable with.