ONE SIMPLE QUESTION From A Newbie...
It seems that most of the literature I have read encourages investors to make offers anywhere from 50% to 70% of the ARV. However, you then would have to deduct repair costs and whatever amount you want as your assignment fee before coming up with an offer, or at least that's how I understand it. I'm not too sure I completely grasp this issue. In an effort to forget about percentages, for a moment, can anyone tell me on average, how much UNDER ARV would tell me if I found a good deal or not (i.e. $20k, $30k, $40 or $50k under market??). I guess what I'm really asking is, how low must my offer need to be under ARV in order for my buyer/rehabber to consider it a good deal for them? Just a general figure is all I'm asking. If anyone can help clear this up for me, I would GREATLY appreciate it! Thank you!
Richard
Please do not contact me on being a real estate locator for one of my companies as I am only sharing this information as a teaching tool.
What determines the purchase price of a property for the purpose of wholesaling to another investor is determined by you investors needs!
Your first step in becoming an wholesale investor is to find other investors to sell to first and find out what their investing wants, needs & criteria is.
Let me give you an example of how my real estate locators work. One of my investment companies will only deal with single family homes in middle class areas and we purchase at 75% or less of actual market value and require $15,000 net profit and in return the locator will get a finder's fee.
One of my other investment companies only deals with lower end single family homes and we purchase at 60% or less of actual market value and require a net profit of $10,000 or more and the finder's fee is $500 to $1,000.
And we could go on with this.
Truly what makes a good purchase and wholesaling it out is how much profit will be made and how fast the return on investment will be. $20k, $30k, $40 or $50k under market may or may not produce profit.
John Locke has a great ebook on this subject matter and may be something you would want to look into.
Please do not contact me on being a real estate locator for one of my companies as I am only sharing this information as a teaching tool.
[addsig]
John,
Thanks for the info. What you have said helps clear that up a bit. Please forgive my ignorance on the issues, as I'm just starting out. We all have to start somewhere, eh?
If you would be so kind as to help me understand a couple of other things, that would be awesome. I have a pretty good general understanding of the process, but it's just small details that I have yet to work out in my understanding of it all.
1. Upon signing a contract to purchase from a seller, I don't understand exactly how the earnest money deposit works. Again, if this question seems stupid to you, my apologies. Here is my problem in understanding this issue. Do I actually physically give the deposit to the seller? All the info I have read would suggest this, but I have also heard from people in other forums state that you should NEVER give ANY money directly to the seller, but rather, put the earnest money deposit in escrow. If I physically give the deposit to the seller, how do I put it into escrow? Am I supposed to rely on the seller to do this? I don't know if I'm missing something here or what, but that seems to me contradictory?
#2: That brings me to my next question. When I open escrow, do I have to pay for this up front, or can I pay for it once I get paid after closing? Or better yet, is this something that my end buyer ultimately pays for? Will the Title company act as the party holding the escrow account?
And finally, last question - I promise! If I assign my contract to another rehabber/investor, is there a way I can go about doing this without my seller being able to see in the paperwork, the fee that I am collecting for the deal? I'm not sure if I want to do simultaneous closings, at least if I can help it. If there is no way to get around my fee being documented and visible to the seller on an "Assignment", how would I go about explaining this to my seller in order to relieve any worries, doubts, or fears that they may have to get them to close the deal successfully?
Not that I want to be deceitful to the seller, but it would be understandable for a seller to get upset about $5000 that I may make from the deal when he could have done it himself. Although, that $5000 won't be coming out of his pocket in the least, they may not understand that. Any advice would be greatly appreciated. Again, I thank you for your patience with me!
Richard
You are not displaying any ignorance! Ignorance comes when one does not ask questions!
Question: Upon signing a contract to purchase from a seller, I don't understand exactly how the earnest money deposit works. Again, if this question seems stupid to you, my apologies. Here is my problem in understanding this issue. Do I actually physically give the deposit to the seller? All the info I have read would suggest this, but I have also heard from people in other forums state that you should NEVER give ANY money directly to the seller, but rather, put the earnest money deposit in escrow. If I physically give the deposit to the seller, how do I put it into escrow? Am I supposed to rely on the seller to do this? I don't know if I'm missing something here or what, but that seems to me contradictory?
Answer: Earnest money is simply a good faith gesture when making an offer to purchase property
You should make your "earnest money deposit" large enough to display or give the impression that you are serious, but avoid placing significant funds at risk.
When making earnest money deposits the contract should state amount(s) to be paid, when the payments are to be made, whether the money will be held in a trust (escrow) account, who will hold it, whether it will be credited against the purchase price at closing, and what may happen to it if the transaction does not close.
Normally earnest money is held by real estate brokers or real estate attorneys in non-interest-bearing trust or escrow accounts.
Do be aware that if you allow earnest money to be held and deposited by a you risk the seller not being able to return it to you in the event the transaction does not close.
If there is a dispute between you and the seller over the return or forfeiture of an earnest money deposit, the broker or attorney must continue to hold the funds in trust until you and the seller resolve the dispute in writing or until a court decides the matter.
Question: That brings me to my next question. When I open escrow, do I have to pay for this up front, or can I pay for it once I get paid after closing? Or better yet, is this something that my end buyer ultimately pays for? Will the Title company act as the party holding the escrow account?
Answer: Yes you will have to pay upfront normally.
You can place terms in your purchase agreement that the earnest money check will not be deposited till all terms of the contract have been met.
For example:
Subject to partners approval
Subject to partners inspection
Subject to loan approval
Yes some title companies can hold your earnest money in trust.
Question: If I assign my contract to another rehabber/investor, is there a way I can go about doing this without my seller being able to see in the paperwork, the fee that I am collecting for the deal? I'm not sure if I want to do simultaneous closings, at least if I can help it. If there is no way to get around my fee being documented and visible to the seller on an "Assignment", how would I go about explaining this to my seller in order to relieve any worries, doubts, or fears that they may have to get them to close the deal successfully?
Answer: You will need to place in your purchase agreement this statement and or assigns.
Your fee agreement has nothing to do with the seller. You simply sign an assignment agreement between you and your buyer.
Normally the title company will do is what is called an open close, in other words you will close with your seller and they keep the title open and then close with your sell to another investor, I like attorneys to handle this type of transaction.