All Forum Posts by: J Scott

1. Assuming you have a contingency in your contract that allows you to back out of the deal, then yes, you can get you EMD back.

Generally, a purchase contract will stipulate a certain amount of time for "due diligence." This is the time period for you to do all your inspections, get your contractors out for bids, or if you're wholesaling, to get your buyers out to view the property.

If you back out of the deal at any time during this due diligence period, you can get your EMD back with no penalty (other than potentially pissing off the listing agent and the seller).

2. You probably want to offer a minimum of $500, with $1000 being even better. Some sellers will ask for 10% down if you make an all-cash offer.

Generally, the more you can offer in EMD, the more likely the bank is to accept your offer. In fact, I often offer the entire sales price as EMD if I think I'm up against other others that might otherwise be better than mine (it's amazing how well large earnest money deposits work).

3. If you're within your due diligence period, you can get your EMD back. If you're past your due diligence period, your only two options are to proceed with the purchase (with your own funds) or to back out and lose your EMD.

It does, but in some cases (depending on the location/property), vacancy rates can be so high that the "50% rule" turns into 60%, 70%, or even 80% because vacancy and rent loss are so high...

Just something to look at for...

Yes, the numbers seem to work...

But, remember the 50% rule is just that -- a rule of thumb. It's not a magic formula that works in every situation...in fact, sometimes your expenses are MORE than 50%.

Take a couple minutes to list out your expected expenses (and their amounts):

- Vacancy (talk to other investors in the immediate area and see what kind of vacancy rates they are seeing)
- Rent Loss (how much do you plan to lose due to concessions and non-paying tenants?)
- Taxes (you should be able to get this from you local tax assessor website)
- Insurance (call your insurance agent for a quote)
- Maintenance (what kind of condition is the place in? What type of location?)
- Property Management (will you use a PM or do it yourself?)
- Utilities (will you have to pay any?)
- Advertising (how will you advertise for tenants?)
- Lawn Care (will you cut the grass yourself or hire someone?)
- Etc...

If the 50% rule works, that's a good indication of whether the deal will work, but don't stop there...but a bit more thorough just to be sure...

1. Find a fantastic deal, and start marketing it. Use Craigslist, your local REIA, bandit signs, etc. If the deal is great, buyers will be knocking down your door, and you can start building a list.

2. Again, if the deal is great, buyers (investors) won't require an inspection period. They'll come in, spend 15 minutes looking at the property and make an offer. Even you're looking to wholesale to owner-occupants, if the deal is great, an inspection period won't matter, as someone will buy the property from you.

Of course, you need to be able to do your own inspections (hire a GC if necessary) to determine if it's a great deal or not.

3. Depends on how the contract is written, but generally the answer is yes. But you should get an earnest money deposit from your buyer which should be at least as much as you put down in earnest money, so that you're covered if the buyer backs out. Also, you should have backup buyers for these cases as well.

You can put in a due diligence period in the offer(s), which will allow you to back out of one or more of them without penalty if you get into a situation where you get too many accepted offers.

The other option is to purchase the REO in a newly created LLC, and sell the LLC (with its single REO asset) to the end buyer.

As for getting around paying the deposit as the wholesaler, put a stipulation in the contract that the EM will be paid within 48 (or 72) hours of binding contract, and that gives you at least 2-3 days to find a buyer and have him put the deposit down (and much more time than that if you started marketing before you got the property under contract).

There are plenty of strategies to successfully wholesale REOs. Not worth the effort from my standpoint, but certainly there are people who do it very profitably.

Unfortunately, there's not enough info to determine if this is a good deal or not...

Specifically, without knowing how much cash you put into the deal, there's no way to determine if your ROI is reasonable or not. For example, if you put down 20% on the deal (which would be $5000, with a $25,000 loan), your cash-on-cash return would be 66%, which is great. Of course, if you put down $50,000, your cash-on-cash return would be around 6% -- not very good.

So, that's a big factor.

Also, you're missing a bunch of expenses that I would expect to see. For example:

- Advertising Costs
- Lawn Care
- Termite Inspections/Repair
- Capital Expenses
- Property Management (if you *ever* plan to use one)
- Utilities (during vacancies)
- Administrative
- Accounting
- Legal

Lastly, your vacancy rate is assumed to be under 6%...is this really feasible for this location/property? And does this include rent loss due to things other than vacancy -- for example, concessions or non-payment?

Some things to think about...

Jason,

You said:

"(Market Value $72,000)The most (comparable)recent sales in the neighborhood were $36,000 and $71,500.."

If the most recent comps were $36K and $71,500, why do you believe that the market value is $72K? Market value is what you can realistically sell this property for in a reasonable amount of time. Unless the market is appreciating, there's no way the market value would be higher than the most recent comps.

Do you see where I'm going with this?

Also, it's unlikely that one of your comps is twice as high as the other -- this likely means that not both of them are comps. What was the difference between these two properties, in terms of location, condition, size, etc? Which one is more like your property? That's probably the more realistic comp.

I would do the analysis exactly the way MikeOH does above, which indicates that you shouldn't be paying more than $35K for the property (acquisition + rehab costs).

First, definitely keep in mind what Jack mentioned (SEC regulation)...talk to your attorney to determine how you can legally solicit for investors/partners...

As for how to structure, there are an infinite number of ways, and it really boils down to what is comfortable for both you and your investors.

In general, the less experience/reputation you have as a successful real estate investor, the more money you're going to have to put into the deal to attract investors. No investor is going to want to put money into a deal where the guy running it has no experience and nothing on the line.

1. It depends. Are these guys reputable? Are you interested in getting into short sales? Are they incurring all the financial risk of the deal?

If you answered "yes" to those questions, then it's probably a smart move.

On the other hand, don't jump into this because it's the first opportunity that has presented itself. Short sales can take a long-time, can be frustrating, and don't always (or even generally) pan out. If you don't have the personality (or interest) to pursue short sales, find another approach.

2. If done right, no you don't. You get the property under contract with the seller, with the ability to assign to another buyer. You negotiate with the bank, come to agreement to purchase at a specific price, and then assign the contract to another buyer for a fee.

There are other ways of doing it (double-close, for example), where you may need to come to the table with cash. It depends on what you're trying to accomplish and how you're dealing with your buyers.