All Forum Posts by: Richard Warren

It that example, yes. However, I was just using an extreme example to illustrate the point. The idea is that you need to think creatively. Terms can turn a bad deal into a good one.

Even if he has a loan you can purchase the property "subject to" the existing mortgage and use terms to deal with the seller's equity.

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Two things sell real estate: Price & terms.

To use your example:

Your Price
$40k purchase
20% down = $8,000
$32k mortgage @ 7% for 30 years = $212.90

Total Cost

Down Payment $ 8,000.00
Mortgage Payments = $76,642.85
Total Cost $84,642.85

Buyers Price/Your Terms
$50k Purchase
$0 down
$50k Mortgage @ 0% for 30 years = $138.89

Total cost = $50,000

His price and your terms cost $34,642.85 less in this case. This is definitely an extreme example, but it illustrates the point.


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You are more likely to have a positive tax situation. If you are flipping properties quickly you are considered a “dealer†by the IRS and subject to self-employment taxes AND you will be taxed at ordinary income tax rates on your profits in most cases. You may be able to avoid some of that by operating as an S-Corp. By holding them as rentals you get to take advantage of the depreciation deduction and can also be eligible for long-term capital gains treatment at tax time if you’ve held the property for more than one year.

The hold time varies by property, can be as short as one year or many years. I currently have several rentals that I will finish rehabbing and sell when the current tenants move. However they have great cash flow and I don’t really care how long the tenants stay. I can do that because I have several other sources of income and I am not in need of the money that those sales would generate at this point.

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This has been a part of my business model for years. I purchase distressed properties and rehab them enough to rent them. When I am ready to sell I will complete the rehab and liquidate the property.

What you need to watch for is that you do not pay too much or underestimate the amount of work needed. Those are the two most common mistakes that new investors make. You also need to be sure that the properties will provide adequate cash flow to cover your expenses.

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Using a hard money lender is not the same as cash. You are still obtaining financing, just not from traditional sources. If you were using a home equity line or some other credit line that would be the same as cash.

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You would probably need to do a double close. This means that you actually purchase the house and immediately sell it. Much more complicated than an assignment but it is common. You will need to bring money to the table to do this in most cases.

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First off, is it really a deal? You have a HUGE spread in the value. A spread of $220k-$270k says that you don’t know what the house is worth. At $220k this is not a deal, at $270k it MIGHT be depending on how much work it needs.

Now the other problem, it will be a very difficult deal to wholesale. Banks will not usually allow you to have a purchase agreement that says “and/or assigns†nor will they allow assignments. They will also want you to show that you are capable of completing the transaction. They will also expect a significant amount of earnest money with the purchase contract.

Nothing is impossible, but this will be difficult. The main concern is that you are not sure of the value.

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I think he means a card that flips open.

I’ve used printingforless.com with good results.

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On the left side of this page you will find a section for local resources. There are REI clubs listed by state.

Here are the listings for California:
http://www.biggerpockets.com/real-estate-clubs/california.html

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Actually the limits have been reduced to 4 loans. Not all banks sell their loans to Fannie & Freddie. You should look to smaller local banks and you will find one. A good mortgage broker should be able to help as well. A lot of people make a big deal about the reduction from 10 to 4 loans, but that’s they way it used to be for years.

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