All Forum Posts by: Will Barnard

Talk with local RE agents and see who they use to shoot their MLS listings. That should get you some good contacts.

I would speak with multiple lenders to see what each has to offer. Some will allow their first position to have a second loan behind it regardless if it is seller financed or not. Not all lenders are created equal so look for the best options. Keeping some reserves is certainly a wise thing to do and likely a necessity with most lenders wanting to see reserves of 6 months min. Once you add value with rehabs, you could also cash out refi (once any seasoning requirements are met) to get some additional tax free capital back into your account.

The best thing to do in scenarios like this is to write down on paper each financial situation. 1 being the sale and what you net out of it after taxes (if any beyond your primary residence exemption). Then what you can do with that capital as a re-invest and what that return vs risk is. Then do the same financial analysis on the keep and hold identifying gross rent less ALL expenses including vacancy factor, property management, capital expenses, etc. Now you have a side by side comparison to review. It could also be beneficial to do this with your CPA (use a CPA that has real estate investing knowledge, particularly one who owns their own RE investments as well).

On a general note, the more you keep and hold, typically, the better you will be off financially. Of course some assets produce better than others so you need to consider those factors as well.

So your answer is TBD and really cant be answered with the limited info thus far. Best to get with your CPA. Good luck and welcome to BP Nation!

Thanks for the kind words.

The legalities mentioned above are not quite accurate, as many wholesale by assigning a contract which involves them finding the deal, negotiating the deal, locking the deal, marketing the deal publicly to find a buyer and then selling the deal for a fee which brings buyer and seller together. In the eyes of the law here in CA, that is brokering and without a license, you have violated the law. This holds true in almost all states. Now, if you buy, purchase, then market and sell your deal via double closing where you do not market it until you own it, then you have not brokered anything, you are acting in the capacity of an owner who can market and sell their own property without any license requirements. There are several other ways and means to legally wholesale in all states without brokering without a license but your process must be done correctly.

Yes, I have purchased from wholesalers but I am very cautious in doing so and they are almost always very greedy in their profit margin making the deals so tight, they are risky for me and no risk to them (a completely unfair situation). I have lost money on two of the approx 6-7 homes I have purchased from wholesalers. That is about a 33% deal loss margin which I would say is very high. One was a simple case of bad circumstances and mis-calculations on my part for the ARV, but the wholesaler also pitched an even higher ARV on that one too.

Yes, I expect to be provided a ballpark rehab budget and ARV from the wholesaler so at quick glance, I can see if it is something worth analyzing. Besides, it is my opinion that a wholesaler cannot possible know what to offer if they do not know how much the correct ARV or rehab is, otherwise, how the heck can they know if there is a spread or not? Most inflate ARV and deflate rehab to make the deal the "best case scenario" so they can sell it, this is where I and many others take issue with that as it is nothing more than lying, plain and simple. Yes the investor should still run there own numbers, we have to as so many wholesalers are lying or are just ignorant to the truth on numbers but that does not relieve the wholesaler from doing his/her part of providing their numbers based on real due diligence and not some number pulled out of their rear end to paint the picture rosy.

In my business, my reputation is EVERYTHING and I have spent a lifetime building it. No way I let it get tarnished over any one deal by screwing over another. I have lost over $250k on one flip and 6 figures on another where the deals went bad for one reason or another and NEVER did I walk away from my investors telling them sorry, I lost, you lost. I paid them off anyways and moved on. So when wholesalers lie or cheat, or act in the greedy manner I see every week, I become frustrated and angry and will stand up for what is right and legal.

How do you know the market will dip right after you purchase, you have some crystal ball you can share with us? Many investor, including myself, thought a market correction was coming in 2017. We were wrong and though I did not sit on the sidelines (thank goodness), anyone who did missed on on 4 more years of growth in the market in just about every location in the US. So to quote the popular saying, don't wait to buy real estate, buy real estate and wait.

A good deal is a good deal no matter what the market does down the road for buy and hold. For flips, you do need to be careful of a deal which exposes you to a long timeframe in a market that is poised or already started to decline as time is your enemy on flips.

This is a question for your CPA. Every person has their own individual situation and there is not a one size fits all. So with that, common practice is to flip out of S corps and hold out of LLC's (for a second layer of liability protection, first being insurance policy). Flipping income is taxed at your marginal tax rate so the S Corp offers some tax savings there. Seek advice of your professional on this for what is best for YOUR situation and goals.

Real estate agents.

The purchase price of the asset means much less to me than the spread in the asset so the finders fee would be more based on that in my opinion than the purchase price. Another factor is what this finder actually brought to the table to earn any fee. Did they arrange purchase price under market, locate the property and bring buyer and seller together, are they licensed, and a whole bunch of other factors should be weighed. Are they just looking for a finders fee or are they getting a piece of the deal via partnership or some other format also factors in this.

I have always felt that a finder/negotiator of a deal is worth between 5%-10% of the spread in the deal, so if the deal had a profit spread (for a flip) of $100k, I would be fine paying them $10k for that. For a buy and hold, your profits will come over time through cash flow, potential value adds, tax benefits, etc so calculating a fee on that is much more difficult in my mind.

Many newbie flippers fail at estimating rehab budgets as they have not had enough practice or real world experience so getting the help from their lender is certainly one way, but ultimately, one must learn this if you intend to be successful. 

What you describe above sounds more like hard money lenders and NOT private money lenders - big difference although many intermix the terms which is not accurate. Private money lenders are typically not licensed, private individuals you form a relationship with and one in which they are looking for alternative investments other than the stock market, bank CD, etc. Hard money lenders are professional licensed companies or individuals who lend their own (or others) capital to investors and make money from points, fees, and interest spreads. They have way more paperwork, they typically have lower LTV's and typically demand rehab draws as opposed to lump sums provided to the flipper.

The good thing about going to a professional hard money lender is that they will evaluate and underwrite your deal and if it is not good, they are not going to lend on it which is another wall of defense to the beginner rehabber who thinks they have a deal but actually do not.

I would never give a non refundable EMD to a wholesaler. Any EMD would go direct to escrow and then and only then once I have reviewed and agreed to the purchase contract and any and all terms enclosed in it such as inspection timeframe, closing, purchase price, who pays what closing costs, etc.

Your due diligence must happen prior to accepting the wholesalers contract unless you also are granted an inspection period inside the purchase agreement with the seller.

Everything is negotiable so if the price from wholesaler to you is too high, negotiate it down. They are either being greedy with their fee or they simply did not lock up a good enough deal with enough spread for profit for you and their fee.

Certainly a wholesaler wants to vet their buyer to ensure they have the capital and ability to close, but that should be done BEFORE the deal is struck with the buyer, not after.