All Forum Posts by: Steve Furst

@Nick C. , @Mike Delprete, and @Yoann Dorat - thanks for your responses.

@Nick - That makes sense, which alludes to my earlier point I suppose. 

@Mike - I enjoyed your panel at AZREIA earlier this month; it was my first time attending and I learned a good deal. Also, your reasoning makes sense and I can empathize with someone who was so overburdened that if they get a call offering them a tow-line, they might take it since it's an option today. I'd like to chat with you at the next AZREIA meeting - I'll come introduce myself.

@Yoann - Thanks for your reply. I think you and Mike had similar points about the degree of distress some sellers are in, which I concede, I may be underestimating. Your point about RE agents/brokers not wanting to deal with these homes, and lazy investors, makes sense too. Finding a deal is always key, but it should work for both parties. I've never purchased a property wholesale, and I do exceedingly well on the SFRs I own by any measure, so I think there are many ways to buy deals, esp. in an appreciating market like Phoenix. That said, I would personally have a tough time engaging with an owner who was in some form of distress and essentially taking advantage of their situation to lowball an offer on their home. Now, if they truly couldn't sell it otherwise that might be one thing, but scenarios where they're just underwater a need a safety line; well, I think it would be tenuous for my consciousness. I suppose like everything, it's situationally dependent. Again, I appreciate you weighing in and maybe I'll give it a go to form a direct opinion from some experience! Thanks!

Hey all - I have a few questions about wholesalers. This is a bit lengthy, but I appreciate you reading through and considering my questions, perspectives, and thoughts.

 This is not meant to knock the process, but rather to educate myself in what I perceive to be some gaps in my knowledge of the wholesale purchase process and why it works. I also have a few ethical questions.

First, as it pertains to Arizona, with property the greater Phoenix metro appreciating at national-record pacing, why would someone choose to take a haircut on their sales price and sell to a wholesaler, versus directly to an investor or a homeowner? Does this stem from a market education bias, or what? Take the most dire example you could imagine - a deteriorated home in the worst neighborhood in Phoenix, with a highly-motivated seller who needs to get out of their home... why would this person not just list their property on the MLS, with a Realtor, and price it accordingly knowing that some flipper or investor (or owner occupant) will come along and see the value?

Having never purchased from a wholesaler, I am trying to wrap my head around this concept in this environment. I could better understand how this process might work in areas of the country where the market dynamics are dissimilar, but here, now, in the greater Phoenix metro...is this really happening? Are wholesalers being honest with sellers, telling them what they do and that these owners could almost certainly sell their property to a final buyer for more money, probably just as quickly? 

I was listening to the Bigger Pockets Real Estate Rookie Podcast (#51 - Kevin Christiansen) last night, and the guest (from Pennsylvania, I believe) was recounting an anecdote of how he stumbled upon a FSBO (sign in the yard type of deal). The owner was asking $290k, the home was valued around $260k+, and the homeowner ended up selling the deal to this guy for $190k - Mr. Christiansen stated it's because he built rapport with the owner and that the owner "liked" him more than other wholesalers he had visited with. 

This sounds insane to me...why would someone purposefully sell their home for $100k less than asking, and at least $70k less than fair market value, when the property was obviously getting interest (as demarcated by the prior wholesalers he cited that had viewed the property recently), and the fact that real estate commissions would have only been $17.4k? This has got to be information / intelligence / negotiation disequilibrium and it sounds to me like this guy basically took advantage of an elderly couple... not the way I'd personally want to acquire my portfolio or make money, at least if I wanted to sleep at night.

So if that perspective is in fact accurate - is it really ethical to "take a property" off someone's hands because they are elderly and don't know any better? I found myself cringing listening to this guest, despite his consistent theme throughout the narrative of being a good guy, here to help the people, etc. etc.

Now this is just one glaring example, but my primary question still stands - in most cases (or in all) why would someone take a haircut on a property to sell to a wholesaler, assuming they have full information and know what is going on? It dis-benefits them to the tune of 10's of thousands of dollars, and if a wholesaler is interested, a final buyer would be too, especially at a discount that by virtue of the process isn't as steep, and makes both parties (seller / final buyer) better off. This might just be my background in economics talking, but this ' wholesalers market' seems ineffective and inefficient, and I'm struggling to see how it works.

From a personal experience, wholesalers call me incessantly about my properties, asking if I wish to sell them. On one curious occasion, I engaged in a dialogue with one of these callers to understand what they were trying to achieve (this was before I really understood wholesaling). The person on the other end of the line basically tried to offer me around $300k for a property worth $450k. I kept asking why I would sell for that discount when I could easily put it on the market and get full price (assuming I even wanted to sell), and he struggled for an answer, trying to redirect the conversion and frankly "sell" me on the "ease of the process" and the "guarantee of the sale"... Needless to say I found myself scratching my head at why these folks waste their time...

 Lastly - does anyone have data on how much market supply wholesalers generally pick up, on average? Another way of saying this is - what percentage of homes for sale at any given time go to wholesalers? Or, am I thinking about this question incorrectly and wholesalers actually create additional market supply through their door-knocking/flyering/incessant calling parties/etc.

Again, don't mean for this to knock wholesalers as I know this is a process that is alive and well. I just don't understand why... 

It depends the city you're investing in - it varies that myopically. You can't look at it on a state-by-state basis, but rather a city-by-city basis. With that said, each city government website will likely have a subpage or section address rental properties, with links to various information on taxation, reporting, etc.

@Ashley Chris You can save yourself some big bucks by going to your local title office and simply having one of their officers draft a quit claim deed and file it with the county. No need to have an attorney do this - the title officer will do the same and not charge you $500 (which most attorneys will do.) Further, you can set up an AZ LLC at the Arizona Corp. Commission website in about 15 minutes, so no need to pay for this piece either. The establishment of an LLC in AZ is very straight forward.

Respectfully, I don't agree with @Chris I.'s statement about not getting an LLC, or about the tax complication piece. In terms of transferring title to an LLC, it is easy and cheap. The protections provided by an LLC include:

• Protection of other assets via the mechanism of the 'corporate veil' - ie: should someone sue you and win, they would only have access to assets held within the LLC (which should only be one property). Further, this would only come after they were able to ding your property's rental insurance. In the case of negligence, where your rental insurance or umbrella policy do not cover you either to the full amount or because of some clause or term which inhibits coverage, you're exposure is limited to solely that property. Everyone thinks they won't be found negligent until a situation arises where they are. Why take the risk for the small time/monetary cost of an LLC?
  
• The LLC structure provides both privacy for you as the owners (retention of some sensitive information, such as your other holdings, assets, etc. in the event of a legal situation), and acting as a shield against both legal suits, and prying eyes who may wish to look into other assets you might hold.
  
• You also want to avoid your umbrella insurance being hit with a suit, should it arise. Much better for a claim to hit your rental property insurance first and not go straight to this more-expensive policy. 

In terms of tax, you simply roll your subordinate LLCs up to a Holding Company, which provides the ability to deal with tax implications in bulk, for all assets, but also provides an additional layer of protection for your non-real estate assets and your personal information/identity. There is no cost to do this, and you can do it yourself on the AZ Corp. Commission website. The benefit here is that you are able to file taxes for a single entity as opposed to many, which will help significantly when you acquire more assets. It doesn't replace the need to keep P&Ls for each deal, but saves a ton of admin/paperwork repetitiveness for your CPA come tax time, thereby saving you dollars.

In terms of your umbrella policy question, you would get a single policy that covers you, your spouse/kids, your vehicles, pets, jewelry, home, rentals, risk exposure, etc. They are pretty comprehensive, which is why they're called an umbrella policy. Again, I must respectfully disagree with @Andre M. as you DO NOT need a different umbrella policy for each asset. This would be duplicate coverage, and your insurance agent will tell you this if you contact them. A single policy will cover all assets, and you simply add assets to it as your acquire property.

I hope this helps to clarify a few of these topics. Cheers!

Hey @Andrew Dennis Ortiz, congratulations on your growing portfolio. There are two options I might recommend.

1) A Fannie-Mae Homestyle Renovation Loan would work for you, since it seems clear that you purchased this rental as an "owner-occupied" property (noting the 5% down). While this would require a refi, rates are so so low that this might benefit you. This product allows your to refi your rehab costs into the primary mortgage - it's a product we've used ourselves when we renovated our home, so it's a good way to go.

2) Alternatively, you could simply cash-out refi your rental or current home, as lenders will allow you to to take out up to 80% of the home value (although if you can keep it at 75% the rates are better). In today's appreciating environment, with low rates and inflation, it makes sense to tap into as much equity as you can. It's free money.

I hope this helps, but either one of these is a great option to leverage your homes to give you the cash you need to buy/rehab your new property. Cheers.

Thank you, @Ryan Swan. Excited to continue the journey, for sure! Cheers!

@Christopher Balint happy to help - also, remember that your contractor doesn't have to be pre-certified to do a FMHSR loan. Likely, even if they've been certified before, your lender will need to re-certify them. So, just look for any contractor whom you might otherwise wish to do business with based on the basics (ie: they are reliable, come with good recommendations, have a good BBB score, no ROC issues, etc.) and it is likely they'll qualify with your lender just fine.

Best of luck to you!

Hi @Christopher Balint - great question. The Fannie Mae Homestyle Renovation loan is exactly what you describe, a loan that combines the purchase price or existing mortgage with a construction loan for renovations. In my experience, this is used on owner-occupied residential properties (up to 4 units) although I am uncertain if this same product can be used on investment property. 

The way the loan product works is that you'll have your contractor draw-up plans and a cost estimate for the repairs. Then, you'll submit this, along with contractor information to your loan officer. They will approve your contractor prior to issuing the new loan. Once the approval process is complete, the rehab funds will work on a draw basis. You, along with your contractor can choose the number of draws, but typically fewer is better - the reason being that someone from the mortgage company may have to come inspect progress before each draw request is processed. Usually 2-3 will do the trick, to both protect you and keep your contractor motivated to get the work complete quickly, to obtain the next installment payment. 

In terms of contractor certification, from my recollection, the mortgage company runs an assessment based on the contractors license number (ROC #), as well as a supplemental search which includes things like a BBB check on their business. There may be some other qualification involved, but generally your contractor will work directly with the mortgage company to become qualified, so there is little you need to do in this regard.

The 'more' you're referring to is simply flexibility of the loan product. It is one of the most favorable for you as the owner/investor, and essentially protects you throughout the process. Because it is backed by Fannie Mae, lenders are more willing to provide these loans than others, thereby charging a lower rate relative to other 'riskier' products.

My experience in this area comes from utilizing this product on a home we renovated last year. I hope this help, but if there are any other questions please let me know and I'll help answer the best I can.

Thanks, @Jana Crum and @Julio Gonzalez!

Hello, Fellow Real Estate Enthusiasts!

1. 🌎 I'm originally from Tacoma, Washington but have lived in the greater Phoenix, AZ area for the last seven years.

2. 💫 My goals include the following:

• Further my investing career by acquiring more SFR and multi-family assets
• Continue to grow in my knowledge of all things real estate
• Find like-minded individuals to 'talk shop' and collaborate
• Discover new investment strategies and hone my skillset
• Ask / Respond to questions to help the community (and myself) grow!

3. 🤪 A fun fact about yourself - I am a nerd when it comes to personal finance and tax strategy! Apropos that I'm a RE investor, I suppose!