Many people are promised riches in real estate through attending seminars, education workshops etc. "Become a millionaire using $0 of your own money!!" Yes wholesaling can be very profitable and while it's very enticing to get started jumping in feet first, always be careful when trying to accomplish your first wholesale deal. Here is a basic list of things to watch out for and things to consider before getting your first property under contract.

1. BE CAREFUL WHO YOU BUY FROM - Not all properties are eligible for wholesaling and many others will not be eligible for contract assignments. 

a. Many bank/government owned properties come with 90 deed restrictions when purchased. Yes, this means title cannot be transferred for 90 days after your closing!! This can turn a potential wholesale deal into a nightmare. 

b. Many other REOs can come with owner occupant periods ranging from 15-30 days in which ONLY owner occupants can purchase them, another buzzkill!  

c. Other banks will prohibit you from assigning the contract to your end buyer. This means a double escrow (double closing) has to be completed. In this case you would need to make sure you have cash available to handle your original acquisition (transactional lenders work as well). 

Examples of properties to watch out for:

-Fannie Mae (Deed Restrictions. owner occupant periods, no assignments)

-HUD (owner occupant periods, no assignments)

-Many Short sales can come with deed restrictions.

-Bayview (prohibits contract assignments)

-BOA, Wells, Chase, PNC, TCF, and others prohibit assignments.

2. FOCUS ON THE BUYERS AND NOT THE PROPERTY - This is very important when starting out. Who cares if you have the best deal in the world if you have no one to sell it to? Focus on creating a buyer's list or even finding one individual who is an aggressive buyer to sell your property to. I've seen countless first time wholesalers lose their EM deposits simply for the fact that they did not have anyone in their network to sell it to. Find the buyer first, then risk your earnest money. 

This, of course, is a little different if you actually have cash to close. If the deal is good enough you can physically close on it, list it on the MLS, and you should have numerous agents showing it to their investor clients.

3. END BUYER FINANCING - Where are the funds coming from for your end buyer?This is a very important question that you will NEED to know the answer to. The easiest of course is if your end buyer is cash. However, there are many restrictions if your end buyer is receiving financing. Always check with their lender to make sure they can get a clear to close based on the wholesaling circumstances. 

IMPORTANT FOR DOUBLE CLOSINGS/LISTING AS-IS AFTER CLOSING FOR A PREMIUM - Most lenders (excluding hard money) will not originate a loan if the seller on the contract is NOT the individual/entity on title. In most wholesale (double closing deals) you will be listed as the seller on the contract (contract between you and your end buyer) but you do not yet own the house therefore your name will NOT be on title. In this circumstance the lender can stop the deal dead in the water. 

If you are closing on the home and then listing as-is be very careful with FHA buyers. FHA has a seasoning requirement of 90 days (title of property cannot change hands more than once in the last 90 days). The date on your contract (between you and your buyer) would have to be dated 90 days AFTER you originally closed on the home. Trying to work with an FHA buyer (there are plenty out there) can greatly delay your timeline and can scare many potential FHA buyers away.. Do not take the buyer's agent's word on time-frame of closing (many agents are clueless to this rule, always contact the buyer's lender).

4. TEST THE WATERS - Nowadays many property owners will grant you a few days (after offer acceptance) to submit earnest money. That means you can officially be under contract today but your earnest money may not be due for another 4 days. There is actually now a section in the NAR contract (contracts that many agents use) for you to fill in how many days after contract acceptance you would like to submit Earnest funds.

Try this; put the property under contract, send it out to all of your buyers, if you have no interest in the first few days then possibly it's a home not worth pursuing. On the other hand if you receive a lot of interest then you know you can confidently move forward with submitting your earnest money deposit. Remember, even if you win the contract and decide to back out, due to no interest, you can always use your attorney review period (common is 5 days) to back out of the contract with no repercussions. DISCLAIMER - This does not work on investor HUD properties as effectively as they require EM to be delivered within 24 or 48 hours with little to no chance of getting it back once submitted.

5. WATCH OUT FOR MUNICIPALITIES - Be VERY careful on what town you are buying in. There are some towns in the Chicago land area that will not allow investors to "instantly flip a home". This can be very troublesome when doing double closings (double escrow). Be careful of the towns that have pre-close inspections on properties. These towns might  make you sign an affidavit stating you will repair all code violations within a specified time frame after closing. They will not issue a transfer stamp, for the resale of your home, until repairs are complete and final inspection is cleared. Some municipalities that do pre-close inspections will allow an immediate sale as long as your end buyer signs the repair affidavit. Always call the municipality to make sure you can double close a property.

6. TITLE COMPANY/ATTORNEY - Use a title company and attorney that is knowledgeable on municipality rules. Make sure they know the ins and outs of double closings, assignments, and wholesaling transactions. Check your local title company rate cards to make sure they are competitive with other companies. Always try and build a good relationship with your title company/attorney. The more deals you bring them the bigger discounts you might get!

7. WHERE IS YOUR DEED - Your title company/attorney will hep you with this. Always make sure where the deed is/will be located! Your end buyer will not be comfortable closing at a double closing if the original deed, or a copy of the recorded deed, is not present. Copies of unrecorded deeds do not fly so well with attorneys as they aren't deemed reliable. If you plan on actually closing and relisting the home as-is for a higher price make sure your deed was hand delivered to the county. This will ensure a much faster recording time-frame vs. mailing it to the county. Mailing the deed to the county can take up to one month for it to get recorded!

8. FINANCING - With a contract assignment usually this isn't an issue. However if you are double closing and you do not have the funds to close make sure you find a reputable transactional funder to fund the purchase side of your deal. Many companies will require the end buyer's funds to be at the title company before they will wire their funds. Always call your lender to find out their requirements so that your transaction go can smoothly.

These are just the basics and yes wholesaling can be harder than some people think. With a little work, dedication, and the right team you can potentially build up a lucrative business in a relatively short period of time. 

Thanks for reading and as always; Happy Investing!

Respectfully,