There has NEVER been a better time than now, to negotiate and get a deal, as long as you do it RIGHT. Wholesaling is a word used in real estate, where the WHOLESALER finds a good deal, negotiates with the motivated seller, helps structure the win-win for them, and gets it locked up and under contract. Once the wholesaler has a good deal, he or she can then do a couple things:
1. ASSIGN the contract to purchase to another investor, who will be the one who ACTUALLY closes on the property. This one has the least amount of risk, as the end buyer pays you a set fee, and they buy all the rights to purchase that deal at the same terms you negotiated – you never take ownership of the property itself.
2. Do a SIMULTANEOUS CLOSE, where the wholesaler SELLS the property in the morning, and the same day, BUYS it with the funds received from the first transaction. Usually you’d use this strategy when you’ve made a KILLER deal, and want to make more than $3-5K for your fee. These deals can net you between $10K and $50K, depending on what your target properties are.
Is this risky? Depends… do you have a good attorney on your team, to help lead you through the pitfalls? And YES – sometimes, the end buyer does NOT come through. What happens then? This is another reason why it’s so important to have a good relationship with an investor-friendly attorney in your area, that has experience in doing these transactions.
In this market, things have tightened up a bit, and have made it a tiny bit more difficult, but still – if you can adapt, you can still have a hugely successful wholesale business. I know of many wholesalers in the Boston area, who are making some SWEEEET deals right now. A few tips to be careful of, when doing simultaneous closings:
- Occasionally, you may need what’s called transactional funding, to fund your BUY side of the transaction. While it’s still possible to close without this (you need a good title company or attorney, who is willing to do it), there are many private lenders out there willing to lend you the money for the 24 hours, to get the deal closed, usually for only a couple points.
- TITLE ISSUES: Especially with foreclosures and properties that have gone through many transfers over the years, this is becoming a BIG issue. Does the motivated seller you’re working with, have title insurance they purchased, when they bought the property? If not, remember that you CANNOT sell a property that does not have “clear & marketable title.” Make sure, even if you’re wholesaling to another investor, that your title company or investor friendly attorney runs a title search to see if there are any problems. And more importantly – ensure you have some outs in your contract, so that you don’t lose any money if you find your property has costly title issues that need to be addressed!
**As a side note… I always tell my students to NEVER be penny wise and pound foolish when it comes to buying title insurance at a closing. ALWAYS get title insurance for yourself, whether you’re wholesaling or buying your own home – it makes things so much easier when it comes time to sell, or even if you DO find a problem later on… they pay for any and all issues.
- SEASONING: If your end buyer is NOT a cash buyer, and is using financing from a bank, know that many lenders require the property to be SEASONED (held, in one name, for a certain amount of time), or else they will not lend on it, and you’ll be out a buyer. This all depends on the lender, and their requirements.