Is this a wholesale deal?

13 Replies

Good Morning,

I have a question. Say your doing a wholesale deal and let's say a lead has about $150,000 in equity and has a principal balance on the property of $100,000. Is this still considered a wholesale deal and could that situation be handle to make it a wholesale, or, would this be disqualified as a wholesale and qualify as, say, a lease option?

Thanks.

@Jason D. ,

I’m trying to get an idea of how it would work Incase I get a lead that has an issue.

If a house is worth 250k and they got a mortgage for that amount and there’s only 100k equity in it, how could we make it work or will it work. 

What would be the least equity a wholesaler to take and make it into a deal taking into consideration 65-70% ARV - the repairs.

I haven’t actually got a deal yet and have no mentor but I’m trying prepare and think ahead of how I could handle a situation like this when it comes and I’m sure it will. 

@Ellis Thurman Jr dont worry about the equity, that doesnt change your number, it only changes the likelyhood of a deal and it's something you dont know until you speak with a seller anyway. Just use the 70% ARV minus repairs for find your number and you'll have a good idea of the price you'll present to investors. Then every dollar less than that is a dollar in your pocket.
Originally posted by @Ellis Thurman Jr :

Thank you @Michele B.,

What is the sweet spot for a wholesale deal beside the obvious (free and clear)?

 I would say you need a good amount of room so if the property is worth 200 k you would need to find something selling for 120 k then sell it off for 130 K .... SO take that down to a 50 k  value, buy it for 20 k sell it for 23-25 k It just depends what you think it will sell for. 

Do not bite off more than you can chew.

Thanks for the input, so....

For the sake of easy math, motivated seller house ARV is 100k. I'm not paying more than 70k dictated by the wholesalers formula. Repairs will cost 20k and i want to make 5k off the deal. I offer motivated seller 45k for his/her house.

Now, given the numbers how much equity would be needed to keep these numbers like it is....(assuming 100% free and clear) How much equity would dictate using a more creative approach (lease option, etc.)? 

This is the part I'm not clear on. No guru cleared this one up for me. 

@Ellis Thurman Jr your offer number is spot on. if its 100% free and clear, it's all equity. Not trying to be insulting, but do you understand equity? The seller has equity in the property, not you. All of these strategies have less to do with equity, than mortgage balance. Mortgage balance is going to be the deal breaker in most cases.

@Jason D.

It’s all good. Equity is what the seller adds to their home for paying there mortgage on it each month. I get that. Correct me if I’m wrong, I am a newbie. 

So, it’s more about the principal balance of their mortgage that will make or break a deal and not the equity in the House their motivated to sell?

@Ellis Thurman Jr When you pay your mortgage, you are ,usually, BUILDING equity, but equity is the difference between the property's value, and the mortgage balance. So if you owe $50k on your mortgage, but its worth $100k, you have $50k in equity. So, as a wholesaler, the amount of equity the seller has in the property doesnt matter to you, because your number is based solely on its renovation costs and is value after those renovations. Now, equity will be important to the seller, because the more equity they have, the more cash they will keep after paying off the mortgage. What you want to focus on, and be great at, is knowing the after repair value, and being able to accurately estimating renovation costs. If you nail those down, and are willing to hustle, you'll be very successful

So, if motivated seller doesn't have the equity to pay off their mortgage then we have a no deal because the lender would still have interest and a first lien on the house.

Then, at the point would be when to consider a lease option?

@Ellis Thurman Jr right... if the mortgage balance is greater than your offer, the deal is likely dead. I dont know that a lease option is what you would look to do, but maybe a "subject to" deal or something creative like that. That would involve you taking "ownership" of the property, and not wholesaling it. There are other factors involved to know if it makes sense for another type of creative purchase.
@Ellis Thurman Jr What makes it a wholesale deal is if you bring it under contract for purchase that is assignable and then you have a separate agreement to purchase that contract. As long as the purchase price is enough to not leave a lien on the property you can transfer clean title. Sound like a promising lead, nice job.