What is The Best Way to Wholesale a Short Sale?

[drelise]

I have a short sale under contract with a $30K spread and I wanted to know the best way to structure a wholesale deal on it.

Thanks,

[Roger J]

First, a $30K spread from what?  Retail or rehabber price?

Example:  if the ARV is $100K and you've got it under contract for $70K, then no investor that knows what they're doing is going to buy it from you.

Second, the best way to wholesale a shortsale is to buy it, then sell it.

Raj

[drelise]

The spread is $30K from Rehabbers price(wholesale).
You mention the option of buying it first then selling it. Are you suggesting a simultaneous closing?

[gordo2417]

Actually Raj if you have a landlord buyer you can easily wholesale properties at 70% or even higher.  LTV means nothing for a LL.  Its all about the cashflow.

What do you mean by structure?  There are many ways to advertise this deal.  You could get it under contract with that bank and put it on the MLS (legal to do even though you don't own it yet.....a thing called equitable interest).  You could post your deal on craigslist, backpage, postlets.com is one my favorites.  You could use a local fsbo company and list it on their site or use classified ads to get the word out.  Flyers at gas stations, grocery stores, your local REIA, etc.

If you are going to buy and then sell it that is NOT a simo close.  That would be a double close where you buy it then resell at a later date.  A simultaneous close would be where you use your end buyers funds to fund both transactions.  They are pretty slick but riskier than a double close for one main reason.......if your end buyer doesn't come through with his financing then you are left answering questions from the title company, the realtors that are expecting a check, the seller, etc. 

I personally use a double close cause my local banks money is cheaper than cheap.  But a simo close is nice if you can pull them off.

Nate-WI

[Roger J]

Actually Raj if you have a landlord buyer you can easily wholesale properties at 70% or even higher.  LTV means nothing for a LL.  Its all about the cashflow.
Yes, Nate, I am perfectly aware that there are more than one type of "investor" that buys wholesale deals, and that you can sell them for more than 70% of value in some cases.  Thank you.  However, that's STILL the golden number to look for in ANY deal.

I'll add that a simultaneous close, as laid out, is illegal in almost every state.  Yes, people do them "all the time."  I know I'm going to hear that now.  Still doesn't make them legal.

If you already have it under contract, then about the only easy way of wholesaling the deal is to close on it, then resell it.

Raj

[gordo2417]

Glad I could shed some light on the subject for you Raj.   And yes...simo closes happen all the time and if they are illegal why are we all not in jail.  Gimme a break Raj. 

Nate-WI

[tampasteph]

Raj,

Where are you getting your info from about simo. closes being illegal?

I'd like to take a look at it so I can show the attorney who owns the title company I use.  I'm sure he'd  like to know, too.  Especially given that a majority of his business comes from investors who are wholesaling REOs and doing simul closes.

Steph
 

[Roger J]

Alright.  For those that actually care and aren't simply finding reasons to Flame Raj, here you go.

As I said, as laid out, which was using end buyer's funds to close the transaction.  Now, if you do it the Guru way of closing the 2nd transaction (end buyer) first, you're selling something that you don't yet own.  So, you're signing a deed to a property that you can't yet convey.  If something happens to "oops!" the 1st transaction (the wholesale buy), then you're screwed.  A "sorry" to the end buyer probably won't cut it.  Add to that, the closing agent must change the order of signing to make the deed structure flow (ie, saying that the 1st was signed first, and the 2nd, 2nd) correctly and legally, they also have a potential legal problem.  Now, if everything goes smooth, great.  If it doesn't...well.

The other primary way that these closings happen is that the 1st transaction closes, then the 2nd, and the closing agent then uses the funds from the end purchase to cover the 1st transaction.  Again, if it's smooth, no problem.  If it's not, then you've got a seller expecting a big fat check that is not coming.  Probably less likely to fall into any legal disputes especially if you're dealing with a desperate seller, but it's still a problem.  Moreso for the closing agent (depending on state laws) as in many states, like NC for example, it is ILLEGAL for a closing agent to close a transaction when the funds to do so is NOT in their escrow account.

Now, how these are usually done, legally, is that either the buyer/investor creates a note for the first closing or, in most cases, the closing agent does.  That gives the "funds" requirement to close on the 1st, while still using the 2nd's true funds to close the deal. 

if they are illegal why are we all not in jail.  If they're being done illegally, they're illegal.  If done correctly, they're not.  Hey practically EVERYONE speeds, but few get tickets.  Does that make it any LESS illegal?

Clear enough?

Now, you can go back to your regularly scheduled Raj bashings!

[gordo2417]

Raj, my man take it easy.  Who's bashing?  I just called you out on something and then you started explaining what I already know.  And yes.....I actually DO care how I do business.  I'm actually ethical, care about other people, and in the end I make money.   

Yes you are crystal clear.....I will slow down to avoid getting tickets 

Your pretty easy to get in a stir Raj.  I think I'm going to start coming back here to have some more fun.

Nate-WI

[e123low]

Well unless the lender forces a non-assignability agreement upon you, couldnt you just assign the contract?

I mean at that point couldnt you just take your money in private with the end buyer, show up to closing, introduce your end buyer to the sellers as your "money guy", make sure the assignment fee does NOT appear on the closing statement, and be on your way?

For anybody whos out there doing short sales, how often is it the case that the lender forces you into a non-assignability agreement?

L8r.

[gordo2417]

e123low,

Yes you can assign it.  Problem is most lenders will not allow an assignment of their contract.  That is why you need to think outside of the box. 

What we usually do is a double closing. We close on the property first, then sell it that same day, a few minutes later, a few weeks, etc. This will require you to close with some type of funding i.e HML, bank financing, private money, etc.

Another way is to do a simultaneous closing. If you have your buyer lined up before you close it is possible to use your end buyer's funds to fund both transactions. This is a true thing of beauty. Less closing costs, no headaches of trying to get the financing,etc. More risk though. If your buyer falls through then your left to explain to the lender, realtors, title co, etc why you don't have your funds ready. If you do this route most folks I know have a HML guy or a private lender ready to go in case you need to close on the deal quickly.

Third way is to add your buyer to the contract once you find a buyer. You get the house under contract, you then find your buyer, then you ask your realtor to get an addendum because you need to add someone. You will then use your buyers funds to close the deal, they pay appropriate closing costs, etc. After you close you then quit claim your interests to him in exchange for your assignment fee.

Fourth one is to buy your house in a LLC. Say your home is on 123 Main St. You write the offer, not in your personal name, but as 123 Main St. LLC. Offer gets accepted. You then get a buyer and then sell that LLC to your end buyer and he gets the property and you get paid. I have yet to do this one but I know others on this board who do.

These are some ways to get around the non-assignability of bank contracts.  Hope this helps a bit,

Nate-WI

[e123low]

Not meaning to hi-jack the thread, but how do you figure out how much a closing is going to cost?

For instance, when you are negotiating with the lender to accept a short sale, how do you go about filling out the HUD-1 to send them as to show what they will net? Generally, do you just ask somebody from a title company to help with that and then you just use those numbers every time?

Thanks