assigning a deal

This post is a response to Nate's post above.
To be clear, there are two types of transactions that we conduct in wholesaling. The first is an assignment of contract, which is a quick, easy method of transferring the rights and obligations of a purchase contract to another person or entity in exchange for an assignment fee.
There are two circumstances where an assignment of contract would not be the preferred method of wholesaling.
1) A property that is owned by a bank, lending institution, or government agency--we typically call this an REO or foreclosed property. These institutions will not allow for assignment.
2) In cases where our wholesaling profit will be very large, we may prefer not to have that profit amount disclosed either to cash buyers or sellers.
It is for these reasons that people do double/simultaneous closes, where they purchase and resell the property within a 24 to 72 hour time period.
This double close scenario has additional costs associated with it. Usually, it will require temporary funding to cover the time period between the purchase and the resale. The cost for this Transactional Funding is typically about 3% of the wholesaler's purchase price for the property. There will also be closing costs for the additional closing of up to 3% that are the wholesaler's responsibility. In other words, as a wholesaler, you must budget approximately 6% in additional costs in order to do the double closing.
As an alternative to the double closing, it is possible to buy the property into a "shell" LLC that has no other assets, which shows the wholesaler as a member, and the cash buyer as the managing member. The LLC will have to be created in advance, many investors have a couple of these shell LLC's available for this very purpose.
Some other specifics:
1) The purchase contract shows that the property will be purchased into the shell LLC (or can be amended to show that).
2) The cash buyer will bring cash to the closing, which will also include the purchase price for the LLC)
3) The cash buyer is added as the managing member of the shell LLC by documentation that can be provided by the title company.
4) The cash buyer purchases the LLC for the agreed price (which would be like an assignment fee)and acquires the property as part of the LLC.
5) The cash buyer has controlling interest in the LLC, and the wholesaler agrees to sign a document provided by the cash buyer that will remove them from ownership in the LLC.
6) The cash buyer becomes sole owner of the LLC and can add other members if they choose.
7) The wholesaler has collected their fee at closing, is now released from involvement in the LLC, and moves on to the next transaction.
I hope this clarifies the process a bit, and is helpful for other readers.

Thanks to Nate for providing the information on Proof of Funds from Best Transaction Funding. I am concerned, however, that some of the new members of the program will allow the content of the post to prevent them from moving forward in making offers if they do not yet have their LLC completed. And we want you to be able to proceed.
I have used Proof of Funds letters from Best Transaction Funding. Using their POF in no way obligates you to use their funding. If you simply need a POF to play the game the way that Real Estate agents are comfortable, Best Transaction Funding allows you to choose whether the POF will be presented in your name or the name of an LLC. Although you must fill in the blank for an LLC name, you can opt NOT to have that name appear on the POF letter that is generated, so if you choose to fill in a fictitious name for an LLC, that name is not going to be used in any way that can be derogatory to you or anyone else. You simply click at the bottom to opt to have the POF show your personal name.
Best Transaction Funding is merely protecting themselves with the statement that they will not be responsible for any misuse.

Other websites that offer free Proof of Funds letters are www.transactionalfunding.com, insiderscash.com, and investorfundingsite.com. I know that insiderscash does require you to have an llc, but would encourage you to do your own checking with regard to the other sites.
Please do not mistake the meaning here. We strongly encourage you to establish your own entity as soon as possible for both liability and tax benefits and protections. We also want people to know that it is legal to make offers and to obtain a Proof of Funds letter without having an llc or other entity--so no excuses, get your real estate investing business rolling and start making offers.

You are correct that some may be overwhelmed concerning an LLC. However, I will tell everyone a little secret (well not such a secret but it sounded, good): The LLC spot that needs to be filled in www.besttransactionfunding.com can be made up. If I do not have an LLC I would just fill in something, anything, in the LLC spot then, as you suggested, fill choose the option to only present my name on the Proof of Funds.

Good comments.

What is the form we have a potential buyer sign stating they would keep any information we give them confidential? Drawing a blank here. Thanks for any info!!

Patty and Dave: The agreement is actually either referred to as a Non-Disclosure, Non-Circumvention, or a Confidentiality agreement in most cases. I have not checked as yet to see if one of these agreements is posted in the Student Resources/Forms and Docs area, hopefully there is one.
I do want to emphasize that unless you are passing along minimal information as in a Bird Dog arrangement, it is critical to place the property under contract before sharing specific information about the property. Not only does this prevent circumvention, but if you do market a property that you do not have under contract, you are acting as an agent rather than as a principal. Unless you have a real estate license, acting as an agent is illegal, and there are real estate agents who would be happy to report you for that as their perception would be that you are stealing business from them. Exercise a little care in this area and you probably will not require this type of agreement because you will have the property pinned down under a contractual arrangement, and can use the Assignment Agreement instead (or a purchase contract if it will be a double closing deal).
As one of the Official Coaches with Dean's program, we have to be very careful and clear in pointing out any circumstances that could cause you to cross the line in terms of the legality, morality, or ethicality of your transactions.

HI DWALL: thank you for this bit of information,of which i know,but this just enforced
it to stay legal,moral and ethical.

This thread has provided so much great info. I'd like to thank you all it has taught me much!

Based on your points, I know you have become very successful with investing in real-estate. That's great to see and it gives much hope and vision for those of us who are just beginning. As I've heard Dean and many say, "it's still not too late". So now my question, would you still advice that we only focus on foreclosures and pre-foreclosures, not REOs or HUD properties? What have you been seeing as accepted offers lately percentage wise in terms of low-ball offers from the listed or asking price? Also, is it possible to use transactional funding in auctions; if considering a fix and flip or wholesale?

This is not exclusively directed to Arcey, but will address the points covered in your post.
I started investing a number of years ago, and worked originally with a mentor who began investing in 1945 at the end of WWII. His comment on whether it's too late was always: "Real Estate Fortunes have been made in good times, bad times, and in-between times."
We are advising people to be open to any property where the seller has both motivation and flexibility, which includes privately owned, bank owned, and government owned properties. We do not encourage that you specialize in properties that require short sales, as they are less certain on time required or outcome. We also advise that you focus mostly on high demand, large supply properties, which would be median-priced single family residences.
Price flexibility varies widely across the country with some high-appreciation areas receiving multiple bids and a need to make offers based on average foreclosure prices minus rehab costs, whereas other areas work well for lower bids that can be 60% or less of the ARV of the property. In areas of higher competition, we encourage expanding your cash buyers list to include landlord and speculative cash buyers who are not looking to buy, fix, and re-insert that property back into the marketplace within 90 days or so.
Transactional funding may or may not be applicable in auction situations, depending on the local purchase requirements. In some areas where a buyer has up to 30 days to close following an auction, transactional funding could likely be applied, but in areas where the purchase must be funded within 24 hours or so, would probably be prohibited.

Hi DG Family,

I think I'm ready to put in a offer for a short sale,cash preferred deal which I plan to assign...the thing is I have to go through the realtor. .any suggestions on the best approach with the realtor? Any advice or comments will be greatly appreciated!!

Jessie

Jessie: There are a couple of details you did not supply in your post; i.e., whether the lender in this situation has approved a short sale, and if so, whether the amount that you will be offering is less than what has been approved.
If the short sale has not been approved, then you will be submitting an offer that will require the contingency: "Subject to approval by seller's lender."

If the short sale has been approved, but the amount is higher than what you will be offering, then you will still need the above contingency because the lender will need to review the lower number for approval.

If the offer is equal to the approved short sale amount by the lender, then the arrangements will proceed as any other offer.

It is suggested that you have a buyers agent who will be working with you on your offers on listed properties. If your agent has a background in working with investors, they will be familiar with making low offers on properties, if not, then you will need to explain to them that we will often be making offers on properties that are calculated offers below the asking prices. I would ask your agent if they have worked with any short sales before, if they have then they will be very familiar with the process, if not, they and you need to understand that short sales that require lender approval can take anywhere from days to a couple of months to be approved. We usually recommend that you not make short sales your primary focus, but they are okay for a sideline project that you know is going to take longer than most other deals.

Hi Dallin,

Thank you for your response. This seller is looking for a cash buyer. Will the restrictions still apply? Should I go back a couple of steps and get an agent to work with instead of finding deals and dealing with sellers agent? Lol..I think I answered my own question! I bought the Profit from real estate book and have been learning and figuring out exactly what I need to do cause I think that particular book might be a little outdated. .any suggestions? Thanks for your time in advance and have a blessed day!

Jessie

Jessie - if it's a short sale, the seller has very little control and the approval ultimately comes from the lender. The lender is going to want as close to FMV as possible, whereas in wholesaling you need to lock it up at a substantial discount. So as Dallin mentioned, it's tough although not impossible to wholesale a short sale. In addition to the price issue, the lender will frequently impose additional restrictions on immediately reselling the property.

A good target market is simply working with motivated FSBO sellers.

Hope that helps!

- Tom

Great info from Tom, thanks!
Just wanted to add a brief explanation on having a buyer's agent. The way that agents are paid is from commissions, which are paid by sellers, as part of the terms of their listing agreement. Since the universal arrangement around the U.S. is that if the buyer brings their own agent, the commission will be divided between the seller's listing agent and the buyer's agent. This means that you can have your own representation, and not have to pay anything extra for that service.
If, under some circumstances, you choose to work directly with the listing agent, there should be a reason to justify doing so, as you are agreeing to work with someone who is not allowed to represent both the seller and the buyer, and their obligations are to the seller.

Thanks Tom....that little bit of information is exactly what I needed to know. So I'll take this deal off the table. ..makes sense to start with FSBO deals as their won't be any third party...thanks agaim Tom.

Have A Blessed Day,
Jessie

Thanks Tom....that little bit of information is exactly what I needed to know. So I'll take this deal off the table. ..makes sense to start with FSBO deals as their won't be any third party...thanks agaim Tom.

Have A Blessed Day,
Jessie

Thanks Tom....that little bit of information is exactly what I needed to know. So I'll take this deal off the table. ..makes sense to start with FSBO deals as their won't be any third party...thanks agaim Tom.

Have A Blessed Day,
Jessie

Jessie - you're welcome and good luck!

- Tom

Great input Dallin, I am LOVING all of the information on this site. It's truly wonderful to see how many people are helping others here.

I wanted to add a little info regarding an agent representing both a buyer and seller in the same transaction. Some states, like Mississippi, do allow an agent to represent a buyer and seller in the same transaction, it's called Dual Agency. Before this can be done, the agent has to explain and get WRITTEN authorization (a Dual Agency form) signed by both parties attesting that the buyer and seller are aware and consent to be represented by the same agent or agency. The agent cannot give confidential information to either side, but you do lose some skills that the agent will not be able to provide because they cannot put the other party at an unfair advantage. So bottom line, it may be legal in some states, but as Dallin said, it's best to get your own Buyer's Agent.

Again, this is such a wonderful resource and I really, really appreciate the people here that give such wonderful advice, recommendations and input.

This circumstance is true in most states, or at least a large number of states. The difficulty of working for a dual agent is that there is the question: Who do they work for? Often, the answer to this is the seller. Most Realtors make more money working for the seller. This is because when they work for the seller they are trying to raise the purchase price which in turn raises their commissions.

Working for a dual agent often means you will lack a true Realtor on you team. This is why many investors spend time building relationship with a Realtor that will be their buying agent rather than work with a listing agent.

Much appreciation to both agenttoinvestor and to Nathan Street for adding additional clarification on agency status. I guess in some situations, I should be more explanatory. I am actually aware of dual agency, as well as what is, in some states, referred to as acting as a transactional broker.
My concern for any investor is that you be effectively represented. In the event that you are involved in negotiation on a property where an agent is involved, if that agent is trying to play middleman, they are compromised in what they can advise either party. And if they already have a fiduciary responsibility toward the seller, their loyalties are already slanted in that direction.
The reason we work with an agent is for the service that they can provide to us directly. Make sure that you are getting all the service that you should be entitled to from an agent. As both Nate and agenttoinvestor posted above, be aware of what you are agreeing to and what you will receive in return, and don't hesitate to bring in your own buyers agent whenever you feel that it will be to your advantage to do so.

Hi!

This information is very important to
beginners like me to gain more confidence.

Thanks,

Peter

did you read the book????? all the info is in the book! and talk to a lawyer and a realtor that will help you understand what to do.

Both Nathan and wmark1963 are accurate, which should lead you to checking your state laws with respect to recourse.
I simply wanted to add that, as a service to the seller of the property who could potentially be slammed with either a sizeable 1099 or even the possibility of a lawsuit to reclaim the deficient amount, you could include a clause in the purchase contract indicating that the offer is subject to approval by the seller's lender, and that the lender agrees not to pursue either a deficiency judgment or to issue a 1099 on the difference, but rather accept the short sale payoff as liquidated damages.
A bank is not forced to pursue further action, and if they agree to the terms of the purchase agreement, it will free the seller from additional liability.
This, of course is not something you have to do, but could be very helpful to the seller, and may not be an issue for the lender.

You are correct the information are found in the book. There regularly seems to be ... something missing in books. You may not be able to put your finger on it ... but there is something you need a little more information on. This is where details such as those found on this site can be very important and fill in the ... missing parts or those that are not quite understood.

Great info Dallin!

Thanks...

Peter

Hello there,

Great information out there and really appreciate for all who have posted. I'm a newbie as well and trying to figure out the technical side of this business. I use to think that FMV and ARV are one and the same thing. I do know how to find ARV (using $ per square footage and comps) but don't really know anything about FMV. Is it OK to think that if a realtor talks about the FMV I should assume that it is the average of the comps in the neighborhood?

Any insight would be appreciated.

Thanks,

Dan

I used to think the same thing. Here is a very simple way to explain making it easy to differentiate the two.

FMV (Fair Market Value) is what the house would be worth the way that it is right now. It may be perfectly fine to live in but possibly hasn't been updated as far as kitchen and bathrooms are concerned. Maybe is a little worn.

The ARV (After Repair Value) is what it would be worth after everything is updated and nice and shiny new. Doesn't have to necessarily be top of the line everything but equivalent in what the ARV of the particular area would be.

Hope that helps some.

Karen

Hi Karen,

Thanks, however, I'm still not clear. Could you give an example on how to figure out FMV? Is this just the $ value of the average sold properties(same as the subject property) around the area (approx a mile radius)over a period of about 6 - 12 months? And without knowing the repair cost, can you also calculate the ARV just by using the same comps?

Very much appreciate your help.

Thanks,

Dan

Dan, Karen may very possibly have some additional information to share in regard to your question, but I just wanted to add a reminder here that when we are calculating an offer on a property, we need to begin with the property's ARV, rather than FMV, and then deduct investor profits and costs from that number. An average of recent sales comparables is designed to provide that information, although that information can be skewed if there are a lot of properties being sold at discounted prices because they need work, or are foreclosures, etc.
There is actually only one REAL Fair Market Value of any property, and that is the price that a buyer and seller agree on. Everything else is just an estimate. Some estimates are better than others. The best estimate is an appraisal, because appraisers use three methods of valuation, and their process actually includes a walk-through of the property. The next best method would be realtor comps because they use the same data source as appraisers. Beyond that would be paid data sources, followed by free data sources.