Can a shortsale be wholesaled?

Question

I have a seller who is extremely motivated to sell and will be shortselling the property.  Is it possible to wholesale a deal like this?

Jon Holdman · Answer

Yes, but not easily.  You certainly won't be able to just assign the contract.  You'll have to use transactional funding or do the "buy in an LLC and sell the LLC" trick.  The bank may also try to impose restrictions on how quickly you can resell.

Michael G. · Answer

Actually, the registration question is a good one Tom. Sorry if I sounded dismissive earlier. I misunderstood the context. I think Jerry and Rob are dead on in their responses. The initial purchase and sales agreement I do through a realtor in my own name just to lock up the deal and because its a valid purchase and sale agreement. When we go to hard contract thats when I have the attorneys use the entity. Bank didnt object. I create the entity after I shop my deal to my cash buyers and they agree to partner in the entity with me for the purpose of buying the deal I bring to the table. The cash partner becomes an officer of the corporation. Jeff's suggestion to use a trust, ive heard is a great way to get around any transfer limits the bank may impose. I've never used one and don't know the mechanics especially when it comes to funding the deal with the trust. Do you have a list of buy and hold investors to market your deal to? Don't wait until the 11th hour to find your end-buyers.

Michael G. · Answer

Yes. It can be done. I agree with Terry and Jon on everthing except your point Terry on it being easy. Jacob's profile says he's a newbie investor. Easy is relative to experience. For instance, type of entity used. LLC's in CA have to pay an 800 dollar franchise tax in their first year vs S-Corp's which get a waiver for the first year. Also, wholesalers typically use OPM so if you plan to fund the deal yourself Jacob, the selling of the entity strategy is a non-issue but if you plan on using OPM it may be better to add your buyer to the corporation as a money partner and have an internal corporate legal agreement about how your wholesaling fee will be paid.

Jerry R. · Answer

I have had a bank refuse to allow me to change the name on the contract.  Maybe I should have waited until the last hour as I asked shortly after they accepted my offer.

Jimmy C. · Answer

We have also seen banks allow the changing of the buyers name on the contract after the deal was negotiated.

In our case the wholesaler changed the name to ours and we paid him a small fee outside closing.

Rob Gillespie · Answer

Absolutely make the offer in the name of an LLC. Name the LLC the address, LLC. Then just sell the LLC. You will need to register it before you close, but you can do that once the offer is accepted and title work is done. Good luck!!!  :mrgreen:

Jerry R. · Answer

That's a good question Tom.

I see some potential problems with the suggestions above.  The seller can accept the offer but the bank can take months to accept.  In my very limited history, the banks want to know as much as possible up front. So if you register your LLC after your offer is accepted and your LLC name does not match the name on the offer that's one thing the bank might not like.

Also, if you register the LLC and the bank does not accept your offer then you would have to wait until you get another deal to sell your new LLC.

So for the people who use this tactic, do you have a LLC ready to purchase a property under before you start making offers?

I buy all my properties in the name of my LLC and the bank always asks to see my LLC paperwork.

BTW, I have 2 properties right now that I bought from short sales.  One has a 30 day limit before I can resell. The other home has no limits.

Jeff S. · Answer

You can also take ownership in a land trust and then assign the beneficial interest to your buyer.  In this case, the $800 minimum franchise tax won't apply.

Jacob Morgner · Answer

The property currently has a tenant in place and I would like to get it under contract so I can wholesale it to a buy and hold investor.  I will market it as a turn-key cashflowing property.  This is a 2003 built home and I have not walked through the property yet to determine if repairs are needed.

Michael G. · Answer

Cool so what part are you playing in the deal? Are you the buyer planning to go to contract on the property? You have an idea what you want to pay for the property and how much you can wholesale it for before repairs? Do you have the repair cost?

Can a shortsale be wholesaled?

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