Hi all,
I make offers on REOs and HUDs off the MLS. My question is what holding entity should I use to make my contracts assignable ? I know that Steve Cook uses an LLC, but in Maryland, it only costs him 100.00. I asked an attorney, and he said it would cost me 500.00 and that because of some frachise fee, that it would be better to use a corp(also 500.00). Can anyone shed some light on this subject ? I’m not looking for asset protection as much as I am a way to assign my contracts, and I don’t want to pay out of the yin yang for each transaction. Maybe a land trust would work. I don’t know, but I’m hoping some experienced texas investors will shed some light my way. Thanks in advance
kardoin,
First of let me say welcome to the board. Glad to have you! :thumbsup
So how many deals are your offers producing? Are you flipping the ones you get under contract quickly and effortlessly? :question
Personally, I don’t see the need for an entity when wholesaling unless you’re doing a lot of transactions. If that’s the case then I would agree that running the money through an entity would be smart.
As far as flipping/wholesaling in a Land Trust, I don’t see when that would ever be appropriate. A land trust is used to hide the fact that your on title from the rest of the world. If you’re assigning your contract to an end buyer then you shouldn’t ever be on title. :deal What’s there to hide?
The franchise fee your attorney was talking about only applies to LLC’s that have over $150,000 per year in gross sales. If you ask 10 different attorneys about which is better, an LLC or a corp., you’ll get 10 different answers.
LLC’s haven’t been around as long as corps. They’ve only started gaining popularity in the last 5 years so most attorneys aren’t familiar with them. The feel more familiar suggesting corps because they’ve been around longer and have more case law supporting them.
Check the beginners forum for my recent remarks regarding LLC’s and Corps.
When talking to attorney’s make sure you’re talking to one who knows what their talking about. Get referrals from experienced investors because they will know who to use and who to avoid. :help
Kardoin,
I just realized I might not have fully answered your question. :doh
All contracts are assignable unless the contract specifically states that it’s not. If you’re offering on HUD’s and REO’s then you’re using the standard TREC contract (Texas Real Estate Commission). :deal
That’s the contract that all Texas realtors use. And as far as I know it’s the only contract that HUD and Bank’s will accept. At least that’s been my experience. The TREC contract does not have a clause in it that states you can not assign that contract to another individual or entity, so you can assign it to anyone you want. :thumbsup
Also, despite what some guru’s say, you DO NOT want to use the words “and or assigns” in the contract. :bs
Especially if it’s a Bank or HUD repo, because they won’t accept the contract. HUD and Banks have been burnt too many times by newbie “investors” trying to flip properties, only to have the newbie back out when they can’t flip it. :oops:
By adding the words “and or assigns” to your contract you are throwing up a big red flag to the world that you are a newbie and don’t know what you’re doing. :hammer
Because of this, Banks and Hud are requiring more earnest money, usually $500, in an effort to keep the investor from backing out. In fact, the last two Bank repo’s I offered on they wanted $1,000 earnest money. :bs
I hope I clarified a little better this time.
First off, let me say thanks for the warm welcome, and even more so for the great response. As far as my deals go, I’ve done only two rehabs, and neither one was off the MLS (1st from wholesaler, and second from bandit sign). I have read Steve Cook’s course on wholesaling and rehabbing, and have been trying to make it work, with no success at this point. Part of the problem is that I was spooked by the fact that lot’s of investors claim banks, and HUDS will not allow you to assign the contract. I was a bit leary about how to submit my offers, and still be able to assign them, without looking like a big ol amateur. You answered my question (in your second post) exactly along the lines of what my gut told me. I was just spooked that I would get an offer accepted only to run into a road block at the flip stage of the deal. I do have another question. Should I be focussing on areas that are full of other investors, or wil investors buy my deals (as long as they are good) regardless of the rehab popularity ? Also, when figuring ARV for my offers, should I be using the high comps. I found a property in an older neighborhood that is an REO, which is listed at 33900.00. I viewed it, and figured 10K repairs should do the trick, then I got comps from a realtor. The comps (CMA) shows the suggested retail price to be 61900.00, but that is the medium price derived from the medium price per square foot. If I use the high price per square foot, the house should sell for 70000.00, and if I take the 5 closest (only one really comes close in size and age), and average, then I come up with 75K ARV. I’m a bit confused as to how to determine the ARV on this (and others). The 61900 price puts the asking price a little bit high, but the 70K puts it just about right, and the 75K ARV puts it at a great deal that I could offer full price, and still wholesale for a decent profit. Can you (Stacy), or anyone tell me how I should be getting my ARV and have it be accurate ? Sorry for the long post, but I’m full of REI curiosity, and some may say obsessed. Thanks in advance for any responses. Also, Thanks again Stacy for your help. :mrgreen: