Wholesalers Please Help!

Bird Dogs, Wholesaling
1

Greetings:

I am a newbie trying to understand the wholesale process.

I am posting this in the hope that anyone will correct me where I am wrong in my thinking or processes. I am trying to create a roadmap to success and avoid as many pitfalls as possible by controlling the wholesaling process from beginning to end. I live in Idaho and intend to close through a title company that will also provide escrow services.

Here are the steps as I currently understand them:

  1. Find Abandonded House/FSBO/Distressed Property that I can wholesale.

  2. Track Down Owner

  3. Meet With Owner

  4. Make Offer/Counter Offer/Negotiate Price

  5. Once They Accept Offer -

  6. Sign Contract to Purchase Property. Make sure the contract includes the words “and/or assigns” after your name. The language would look like this: “From Sally Homeowner to Joe Buyer and/or assigns”. Also make sure that you include in the contract you are purchasing the home in “As Is” condition, with no guarantee or warranty. This will protect you if the person to whom you assign the contract is subsequently unhappy with the condition of the house.

  7. Give A $10.00 Deposit to Owner and a promise to close in 60 days.

  8. Start Title Work - Contact title company. Title company orders a title search and you schedule a settlement date with them. Make sure you order a Title Insurance Binder so that the person you assign the contract to does not have to pay for another title search when he rehabs/flips the house.

  9. Begin Marketing to Find Buyer: Contact people on your buyers list via email/fax/telephone. Run classified ad for property in Real Estate/Investment Properties section of classifieds.

  10. Meet Buyer/Negotiate Price/Agree on Price.

  11. Qualify Prospective Buyer: Ask for proof of funds if they have cash or line of credit. Will they borrow the money from private, (hard money) lender?

  12. Sign an Assignment-of-Contract to Sell Property to buyer and Collect Deposit of $3,000-$4,000. Deposit money should be held in Escrow account at Title Company: On the Assignment of Contract be sure to include “Received $40000.00 as earnest money deposit on 6-14-04 to account #123456, XYZ Title Co.” and initial it once I receive the deposit. If they wrote a check, include the check number or write CASH if they give you cash. MANDATE that the buyer use your Title Company for closing - NOT ONE OF HIS CHOICE.

  13. Submit All Documents to Title Company: Submit the original executed contract with the original seller and the exected contract/assignment agreement with your buyer to the title company and, if you have not already, schedule a closing date. If you have not already, communicate this date to the homeowner/seller and the person to whom you are assigning your contract.

  14. Make sure the lender orders the appraisal and credit report immediately: Insist to the lender that both the credit report for your assignee and the appraisal be ordered immediately.

  15. Call the loan processor within 3 days to make sure the appraisal was ordered: Call the loan processor 3 days later to make sure they ordered the appraisal and credit report.

  16. Seven-Day-Checkup: Call the loan processor seven days later - A) Is the credit report finished? Any problems?
    B) Verification of deposit to pay for credit report/appraisal - did buyer deposit necessary funds?
    C)Appraisal - if you have not been called to meet with appraiser, find out why.
    D)Other Documentation - What else will be necessary for the loan submission.

  17. Fourteen Day Checkup:The loan should be ready for submission by now - if not, find out why.

  18. Loan Approval:Once the loan has been approved, proceed to step 19.

  19. PITTS:
    P - Payoff letter for underlying loans, especially if they are from private individuals
    I - Insurance must be purchased by buyer and pre-paid for one year.
    T - Title insurance must be ordered if you have not already ordered it. Be sure to stipulate that you want a binder included. Again, use YOUR title company to do this.
    T- Termite report ordered BY YOU.When the home is judged free of infestation, send report to lender.
    S - Survey must be completed and in the hands of the lender/closing agent.

  20. Set a Closing Date: For some lenders each of these must be completed/resolved before you can set a closing date. Once these are complete, call closing agent and set closing date.

  21. Day Before Closing: Call closing agent and find out exact amount that your assignee will need to bring. Typically they require cashiers check - call your assignee and make sure they have purchased insurance and have check.

  22. Close: Go to closing, pick up your check, and celebrate!

  23. Follow Up: Within three days send your assignee a congratulatory letter. Make sure they are happy.

Again, if I have missed anything or am incorrect - please tell me.

Lastly: Are Steps 14-23 really necessary if I am going to wholesale this to another investor?

I have spoken to other RE investors on this topic - most say that you simply need to assign the contract and collect $1-3K up front - and go find another deal.

Do you get the fee up front, or assign the contract to them for $10K more than the price you paid for it and collect at closing?

I know this post is long, but for those of you who have read this far, I really appreciate your feedback.

Thanks,

Nigel

2

Howdy Nigel:

Sounds like you have all the steps down pat. Only a few problems that I see and they are the amount of earnest money and the amount of time to close. The low amount of money will not fly with most sellers especially banks etc and the long closing time. It would be better to offer more earnest money and a 30 day close. If you are reselling to investors they will have most of their ducks in a row and either have the cash or a quick source.

The way you have it all laid in steps it sounds like one thing can not happen until another thing happens which is not correct. For example a lot of sellers already have the title report complete as part of the listing package. Also if you can get work done by your seller as part of the sales price then why buy as is. This is kind of a mute point if they raise the price to include the work but you may be able to get stuff done and not raise the price and cost you or the buyer more money.

Once you have received your money you will not need to keep involved in the deal. You may want to contact your buyer from time to time to see how it is going and to offer your help if needed. If they are astute they will not need your help unless it is to smoothe over problems with your seller.

A lot of wholesellers are doing double closing when the fee is over $5000 but this is not a firm rule. Be carefull too as some lendrs require the seller to have owned the property for a year or so befors they will lend on it. They are worried about inside dealing and fake flips etc.

Thats about all I see for now. Except start looking for buyers even before you find a deal to sell them. Finding what area and price etc and how fast they can close and their source of money before you even have a deal will help you focus on finding them a deal. This is not an easy business and it takes some risk and a lot of hard work and some luck…