REO Wholesaling

Wholesale deals are done everyday on REOs but most investors have access to the same information as you. It just depends who can buy from the bank at the best price first.

You can wholesale them. The way to do it is by doing a double closing. You either need to have the cash for it or do it with transactional funding. To do that you have to do a double close or it can't be done.You used to be able to write " TO BE DETERMINED AT THE TIME OF CLOSING " on the contract to purchase where it asked for the name of who the deed needs to be made out to but here in NC the banks are no longer accepting that.

Thanks for all your help everyone. I was thinkin double closing myself, just wanted to be sure and get info from someone more experienced.

Is there a post anywhere or list of what you define a "wholesale" as? I mean, I get the general idea that you're simply buying really cheap and passing it to another investor, not an end buyer, but how much info do you provide to the investor.
Here's an example: I'm looking at a REO in my area listed for $49k. Needs a lot of work, possibly termite treatment, for site grading/drainage and interior finish (it's been stripped floors, kitchen, and drywall 1/2 way up the walls due to water damage).
I am thinking of offering really low due to the amount of work, but the properties FSV (I think that's right: fast-sale value) is somewhere in the $100k range, so I think there's plenty of room for a good deal here.

Question is, do I get some bids on some work to give an idea to another investor of what the property will take, etc? How much do I do in a wholesale?

TIA for info.

You need to provide all the info you can to your investor/buyer. These are the numbers that must be as accurate as possible.

1. ARV (or FSV) of the house after fix up. What will the fixed up property sell for today, quickly. Get a CMA or know your area already!
2. What amount of money (rehab) is needed to bring the property to the ARV number? Get a written repair estimate.

So here is an example:
The ARV is $100,000
Fix up is $25,000
You buy it at 65% of ARV after repairs = $40,000
You sell it to your buyer for 70% of ARV minus repairs = $45,000
You make $5,000 fee minus any closing costs or money costs if any.

This is what your buyer sees. this is how you present the deal to your BUYER.

You buy it at $45,000
Rehab = $25,000
Your acquisition costs $70,000
You sell it for $100,000
Your commission, closing costs 9% = $9,000
Hold time, insurance, cost over runs etc 3% = $3,000
Your net profit = $18,000 26% ROI!

These numbers and percentages are generic and can change on every deal, but the basic out line is what works. Present your investor with a copy of the written repair estimate from your contractor and the CMA from you realtor showing actual ARV. ARV and ACTUAL repair costs are critical numbers. Get them right or the deal won't work!

Michael Mangham
MD Home Acquisitions LLC

Thanks for the outline here. I am thinking this could work very well in other scenarios where maybe the buyer is a "do-it-yourselfer" or even a contractor and wants the property for themselves.

The offer to the buyer might change to more of showing them what their instant equity would be in the property. Those types of deals would probably be less common.

Do you use a certain percentage on wholesale deals you like to make or just what the market will bear on each deal?

Thanks again, very informative.

I just put the contract on the property in my name, then half-way through the deal, I tell the bank (or in most cases, the agent handling the deal) that I want to change the name on the contract to my partner's name for legal reasons, or estate reasons, or tax reasons, whatever. The agent doesn't care, we fill out an addendum, and the agent tells the bank they need to sign it. The banks generally do, because they don't have too much time to pay attention these days. They just want the dang things gone.

Just keep in mind. This doesn't work EVERY time. The banks always do have the right to cancel the contract if you change any aspect of it whatsoever. But it can usually be done fairly easily.