Originally posted by @Rosa Polio:
Hi BP! I'm new to real estate investing, I am located in San Marcos, Texas and have yet to perform my first deal. Mainly, what is stopping me is a ton of questions I have about the process. I chose wholesaling because I just graduated from college and have no money to invest with but plan on utilizing other RE investment methods in the future. So it's very important for me to make sure this process doesn't incur me any surprise costs. I'm the type of person who needs ALL the details before moving forward and it's costing me a lot of time, so I figured I should go straight to you guys for some help! Here's what I do and do not understand about the process:
1. Find a distressed seller/property
2. Make an offer and agree on an offer. Make the offer based on: MAO=ARV(.70)-repairs
How do I calculate Repairs? How do I calculate ARV?
If any rehabbers are reading, what do you look for in a wholesale deal?
3. Get it under contract. Now, when filling out the contract do I fill anything out where it says earnest money or do I leave that as $0? I've learned about an option fee, I was told it could be as low as $10...
4. Find a buyer, fill out Agreement to Assign Contract for Sale and Purchase outlining my assignment fee.
5. Take all paperwork to the title company.
6. close the deal, receive my check.
Simple assignment closing or do I use a double close? I know it depends on whether I'd like everyone to see how much I'm making but is it ever really an issue? If I do decide on a double closing, are there ways for the end buyer to pay for all closing costs?
I truly appreciate your responses! I am just itching to get started in real estate asap!
Rosa,
Below are my answers to some of your questions:
2. Make sure your offer as a wholesaler is (.7*ARV)-Repairs-Assignment Fee=MAO. You don't want to work for free.
To calculate repairs: You can gain some experience about repair costs by talking to other investors. Cost of repairs are area specific but you could do a general ball park / guesstimate to come up with a repair cost. For example a small bath can be renovated from $2K to $4K depending on area and quality of materials used. I have heard J.Scott's book is great for rehabbers and understanding rehabbing costs.
ARV or After repair value - This can be derived from several places. The best place to get this data is from from a realtor that has access to the MLS. They can get you comparables for recently sold houses. Another way to get comps is to use Redfin or Zillow. These services get their data from the MLS as well but it is not well organized and will require you to do some massaging to get the proper numbers. I would also suggest you search zillow or the mls for homes listed in the area to see what houses are being listed for. Although list price does not equate to sold price it will give you an idea of what houses in the area are valued at.
3. Make sure you contract has an assignment clause. Simple statement such as "and or assigns" added to you contract after the buyers name will suffice.
For earnest money: Alwyays escrow it with a third party(i.e you lawyer or title company) never with the seller. There is no required amount by law but most states want to see some form of amount great that a nominal amount of $1 or $10.
6. A simple way to keep the seller from freaking out about your assignment fee is to introduce the end buyer as a partner at the closing. For example: "Mr. Seller my partner Mr. X will be closing on this property you will be receiving the same amount of as the contract states. The only thing changing is the name of buyer on the deed." The seller should not have a problem with this. All they care about is the money they receive. Also if your buyer cares about how much you make you need to find a new buyer. Your buyer should be happy they got a very good deal and not worried that you made money. I would not worry about double closing at this current time.
Hope this info helps you.
