Wholesale REO's

Just curious if any of you ever wholesale REO's? I guess it just all depends on how cheap you can get it? I've seen some REO's almost FMV and others almost 50%FMV. If you have or can wholesale an REO, do you take ownership or assign or whichever the lender will allow?
I thought this would be a good way to build up some capitol!
Thanks!
Sickdog

Comments(17)

  • Birddog14th March, 2004

    Its beginning to become very difficult to get REOs at a resonable discout to make it worth it to the investor. Banks are more aware now of what they can get for a property, and usually have a realtor that they work with in trying to get top dollar for the house.

    But to anwser your question, if a contract is written properly, just about any type of property (with the exception of a HUD) can be wholesaled. Its just a matter of whom wrote up the contract, and If they made it assignable.

    Another thing you need to keep in mind, is that FHA lenders WILL NOT allow "flips" They want to see title seasoning of at least 6 months in most cases, so thats somthing to consider. So if you do flip, your best bet is to flip to an investor, or a cash buyer

  • sickdog17th March, 2004

    Birddog1
    Thanks for the reply, ment to get back to this sooner but have been real busy!

    Look at this scenario and advise me if you can or anyone else if it would work.

    1 Find REO for 50k, FMV 95k needs 20k in rehab.
    2 Offer 50k, with say $500 ernest money, contingent on roof and termite inspection, I get access to the house now to begin my "rehab", and have sixty days to close.
    3 The bank accepts.
    4. I begin my marketing campaign with an ad for a handyman special, FMV 95k
    needs 20k rehab, Sale price 65k, or 60k for all cash.
    5 Get a buyer.
    6. Assign them my right of contract at closing
    7. Get the "white" meat 10k-15k at closing.

    Since the deed was never actually in my name, would an FHA buyer be able to buy, or is this still a seasoning problem?
    Am I on the right track here or is there something I'm missing? Do you wholesalers typically use your name when making an offer or a land trust, LLC, etc.. . How does that effect your success or lack of when flipping or purchasing an REO? And finally, if this scenario is on track, do the banks selling the REO really care who ultimitely buys the place as long as someone on the day of closing shows up with a check for the agreed upon price?
    Thanks folks!
    Sickdog

  • Bruce17th March, 2004

    Hey,

    Wholesaling is wholesaling, so how you obtain your properties is irrelevant to the investor. (FYI, I don't consider this scenario Wholesaling. I think it is Flipping.)

    In your scenario ($95 FMV, $20k repairs, your "selling price" at $60k), there is no room for the investor's profit, it is all in your pocket.

    $95k FMV
    - $20k repairs
    - $5k carrying costs and financing costs
    = $70k x 75% = $52.5k

  • sickdog17th March, 2004

    Thanks Bruce, for responding!
    So if this scenario is considered "flipping" then would it be considered "wholesaling" if I were to put it under contract, take deed to the property, then re-sale it to an investor for say 3k-5k more than I paid?(depending on the deal and the numbers of course).
    Thanks!
    Sickdog

  • tinman175517th March, 2004

    Sickdog,
    You will find many different responses to the difference between the Flippers and the Wholesalers. You can flip properties to a FHA buyer the next day. They are called guidelines not laws, I am closing on a property for an investor 03/18/2004. He bought the property on 12/29/2003. That is not six months. There are guidelines but banks will take deals that make sense.
    Usually when wholesaling the "wholesaler is paid at the close, his or her fee is placed on the sellers side of the HUD.

    Lori
    [addsig]

  • Bruce18th March, 2004

    Hey,

    "Words, words, words...."

    Birddogs, scouts, flippers, wholesalers and rehabbers are just different titles people use to describe what they do in RE. There is no law requiring one title versus another.

    For me:

    Birddogs/Scouts--Find properties. No contact with sellers and no contracts. They receive around $500.

    Flippers--Sign contracts with sellers, but have no plans on closing. They sell the contract to someone else. They receive a couple thousand dollars.

    Wholesalers--Sign contracts and close on the properties. Depending on their exit strategy, they receive $5k to $500k.

    Rehabbers--Sign contracts and close on the properties. They generally sell (or rent) to the retail public.

    You can mix and match to your hearts desire, but you must leave enough on the table for the next level.

  • JeffAdams18th March, 2004

    Quote:
    On 2004-03-17 13:14, tinman1755 wrote:
    Sickdog,
    Usually when wholesaling the "wholesaler is paid at the close, his or her fee is placed on the sellers side of the HUD.

    Lori
    --------------------------------------------------------
    You are joking right??



    Best Riches,
    Jeffrey Adam
    [addsig]

  • tinman175518th March, 2004

    Quote:
    On 2004-03-18 04:09, JeffreyAdam wrote:
    Quote:
    On 2004-03-17 13:14, tinman1755 wrote:
    Sickdog,
    Usually when wholesaling the "wholesaler is paid at the close, his or her fee is placed on the sellers side of the HUD.

    Lori
    --------------------------------------------------------
    You are joking right??



    Best Riches,
    Jeffrey Adam



    No,
    that is how it is stated in most of the contracts I have seen. , when there is only one close. It is usually the difference between the price the wholesaler got the property for and the price the wholesaler is selling the property for. Of course, if you do a double closing than there would be two HUDS

    Lori

    Lori

    _________________
    real estate investor since 1988. I like to find creative solutions for my real estate headaches before they become problems. Most importantly, MOVEMENT DOES NOT EQUAL PRODUCTIVITY[ Edited by tinman1755 on Date 03/18/2004 ]

  • JeffAdams18th March, 2004

    Tinman:
    So you are saying that the Department of Real-Estate in PA is allowing sellers to pay wholesalers a commission thru the sale which is shown on the HUD-1???
    I find that very hard to believe! If that were the case, anybody would be able to go out and sell real-estate without a license!


    Best Riches,
    Jeffrey Adam
    [addsig]

  • tinman175519th March, 2004

    Quote:
    On 2004-03-18 23:50, JeffreyAdam wrote:
    Tinman:
    So you are saying that the Department of Real-Estate in PA is allowing sellers to pay wholesalers a commission thru the sale which is shown on the HUD-1???
    I find that very hard to believe! If that were the case, anybody would be able to go out and sell real-estate without a license!


    Best Riches,
    Jeffrey Adam



    The seller is allowed to pay anyone out of their proceeds. That is not against the law. I have seen real agents and people who have the option get paid on the HUD. The HUD is a federal document, I can't think of a better place to put it. I would not accept a fee that was not on the HUD. This could mistakingly be called a kickback. I also do not accept cash for any deal. I like to keep everything documented. But that is just me.

    Lori
    [addsig]

  • DealerJo19th March, 2004

    How do I know who between you two is knowledgeable and who is not?

  • JeffAdams19th March, 2004

    Tinman:
    We all know that Real-Estate agents and lenders get paid on a HUD-1, Hello!

    So you are saying wholesalers in your
    area are getting paid on the HUD-1 in your area as a commission paid by the original seller? Even if they are not an
    agent? The PA Dept Of Real-Estate allows that? That amazes me!


    Best Riches,
    Jeffrey Adam
    [addsig]

  • iamback19th March, 2004

    Jeff,
    Why can't they get paid on the HUD?
    [addsig]

  • JeffAdams19th March, 2004

    IAMBack:
    They can get paid on the HUD if you put it as a referral fee. This creates problems sometimes though because the local DRE if a complaint is filed will
    say the wholesaler is receiving a commission for selling real-estate.
    They come down pretty hard.

    Best Riches,
    Jeffrey Adam
    [addsig]

  • iamback19th March, 2004

    Jeff,
    Are you saying that it is illegal to be a wholesaler? If it is not on the HUD, how can you proof without a doubt that this actually happened?

  • JeffAdams19th March, 2004

    No its not illegal to be a wholesaler, but it is illegal to get paid a commission without a license! If you know how to
    wholesale correctly you "assign" your escrow and collect your fee. You then
    claim it at the end of the year. Your wholesale buyer is going to 1099 you anyways for an expense incurred to
    purchase property.

    The problem with putting yourself on the HUD-1 if you are not an agent is you are revealing to the original seller that you sold it to someone else and also the
    Department Of Real-Estate can come down on the wholesaler for getting a
    commission without a license if the original seller complains. I know a guy this happened to!

    So all you new wholesalers out there I would advise you to "assign" and then collect your fee, do not put it on the
    HUD-1 as a referral fee if you are not an
    agent as the Department Of Real-Estate in your State will be all over you sooner
    or later.

    Best Riches,
    Jeffrey Adam

    _________________
    "The only place success comes before work
    is in the dictionary."

    [ Edited by JeffreyAdam on Date 03/19/2004 ][ Edited by JeffreyAdam on Date 03/19/2004 ]

  • j_owley30th March, 2004

    good points wink wink

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