Hi David,
If I were you, before I put my time and effort into this, I would want to see proof that he either owns the property (the deed) or proof that he has it under agreement (a copy of his contract to purchase the property from the seller).
If he has not taken title to the property yet, his purchase contract with the seller may be “assignable” in either one of two ways:
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the purchase contract (or sales agreement or agreement of sale or whatever they call it in your area) has an assignment clause stating that he can assign the contract to you. If he wants to white out the price on the contract before showing you a copy, that’s fine. The only price you need to know is the price that he wants for the property.
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many contracts, typically those used by the banks to resell their REO properties, specifically state that they are non-assignable. In this case, the buyer on the contract may be an entity which can be sold or assigned.
When I was wholesaling properties, I would make an offer in the name of a new LLC created specifically to purchase that property once my offer was accepted and then assign the membership interest of the LLC at or prior to closing. I suppose you could also sell the shares of a corporation. I always used an LLC.
The only risk for the buyer in taking over an LLC, corporation, partnership, etc. is that they are assuming any liabilities of the entity as well. However, with a brand new entity, this is not an issue.
If the contract is not assignable by either of the two methods outlined above, you will need to sign a purchase contract transferring the property from him to you at an agreed upon price and have the title company perform what is known as a simultaneous closing where you buy and immediately resell the property. Some people will tell you that these are illegal. I’m not an attorney, but I have yet to hear of a state where they are not legal. Consult with a local title company, they will be able to tell you the answer to this and many other questions.
Assuming he can show that he has the right to resell the property, I see no harm in finding potential buyers, but I wouldn’t introduce the buyers to him. Too easy for him to go around you. I would market the properties to potential buyers on my own without his presence or involvement. However you want to do this is up to you. You can send the buyers to the property on their own. Only risk is that the seller may be there and you would be cut out of the loop.
Not sure if the profit involved in this one is worth your time and effort. If I were you, I would find and wholesale a property yourself. With so many foreclosures, there are plenty of bargains out there right now and many banks willing to unload them. You just need to be careful when buying. In a declining market, what seems like a good deal might not be such a good deal after all.
There are definitely deals to be made. Just keep in mind there are a lot of other properties on the market right now. Concentrate on a few neighborhoods, research the sales information for that neighborhood so you know what investors are paying for distressed properties and make your offers.
If you’re uncomfortable wholesaling a property just yet, a good way to get to know the market without any risk on your part is to act as a birddog for other investors. You find the properties, and they pay you a finder’s fee. It’s that simple. They put down the deposit. They use their cash or lenders to close. All you do is collect a fee paid at closing for any property they actually purchase. $1,000 is common. If it’s a great deal, you could probably ask for a little more, especially if you’ve been finding them really good deals.
Go to your local investor’s club. Call the I BUY HOUSES ads. Talk to other investors, title attorneys, title company representatives, private lenders, etc. Find out what types of properties they like to buy and what areas of the city they prefer. Get a sense for what it costs to repair these properties. Then look for properties in those areas and call your list of investors when you find one.
One tip here. Everyone is scanning the MLS. The big hitters already know all the REO agents. If a good deal is listed, it doesn’t last long, particularly in a market where there isn’t much inventory. Good thing is that there are a lot of homes on the market now.
Private sellers and auctions are a better source for profitable deals than the MLS. Their properties aren’t marketed nearly as well as listed properties.
Once you have a feel for the market and how to estimate repairs, you’ll be much more confident plunking down a $1,000 earnest money deposit and wholesaling a property yourself. Just be sure you can close on the property yourself with your own cash or by using a private lender if you can’t find a buyer. Word gets around town quick if you don’t close on your deals and you’ll have trouble getting your offers accepted.
On the other hand, if you develop a reputation as someone who closes on every deal, you’ll find them coming your way. Agents, sellers and other investors will call you rather than the other way around. Furthermore, as you gain credibility and a reputation for successful dealmaking, more and more people will begin to trust you with their money to do your own deals and give them a share of the profit.
NEVER ABUSE THIS TRUST. IT’S THE MOST IMPORTANT ASSET YOU’LL EVER HAVE. If things aren’t going well, it’s not easy, but continue to pick up the phone when they call. Never just disappear.
Some further advice…
Never let your emotions get the best of you. Emotion equals cost. Never get too excited about a deal. Always be willing to walk, though I’ll admit this is tough to do when you’ve invested a lot of time, effort and money into a deal.
Never lose your cool. If you’re going to walk away from a chance to profit from a jerk buyer or seller, do it with a calm head based on principle. It’s just business.
After you make an offer to a buyer or seller, SHUT UP AND LET THEM RESPOND!
However long they wait to speak, don’t keep talking.
NEVER, EVER COUNT YOUR MONEY OR MAKE PROMISES BASED UPON A DEAL CLOSING UNTIL THE DEAL CLOSES AND THE CHECK FROM THE TITLE COMPANY CLEARS! Can’t stress this enough.
NEVER MAKE PROMISES TO OTHER PEOPLE IF YOU AREN’T SURE YOU CAN DELIVER.
Don’t trust, verify.
Some people are qualified but overcommitted so they never have time for you.
Some people are unqualified and have more than enough time for you, but waste your time and money.
Some people are just thieves, wolves in sheep’s clothing.
When someone says they can do something critical to your desired outcome (e.g., a new tenant, a contractor hired to fix something, a buyer or seller in a transaction), make sure that they can. Check references. Talk to other investors or other people in the same line of work. Ask for proof of some kind (number of transactions performed, years of experience, satisfied customers). When money is involved, a lot of people try to take advantage. Any business with low barriers to entry (mortgage brokers, Realtors and contractors come to mind), is ripe with opportunity for people to misrepresent themselves and their ability.
Hire or contract with the best people you can afford and always check on their progress.
NEVER, EVER, EVER, EVER, EVER, EVER pay a contractor his last installment until the work is done. Always hold enough back to keep them coming back.
It’s a rare person that will take care of your property like you will.
Take a wait and see attitude. Don’t give anyone who hasn’t already performed for you the benefit of the doubt. It’s easy to become excited about working with new people. Don’t. Eventually, the honeymoon will be over.
Most people don’t keep their word. Don’t be one of them. Even if it costs you personally to keep your word, keep it. The credibility you maintain will be much more valuable.
Never, ever let anyone move into one of your properties without a lease.
When it comes to tenants, screen, screen, and screen again. It’s easy to get someone into a property. It’s much, much harder to get them out.
Don’t steal or try to cheat investors, buyers or sellers. You only have one reputation. Don’t destroy it. There are too many legitimate ways to earn a living as an investor.
People try to tell you what they’re worth. They may be worth more. They may be worth less. The one thing you do know is that they have NO incentive to tell you exactly what they are worth.
Never, ever give up and only change direction after educating yourself further by seeking the advice of someone who has actually been where you want to go.
Never believe a seller regarding the value or condition of a property. Do your own homework regarding value and necessary repairs.
Treat others in a transaction well. The investment community is a small one, especially when the numbers get larger. Good or bad. Word gets around real quick.
Never believe a buyer regarding his qualifications. Ask for proof. The real buyers have no problem in giving it.
Accept that you’re going to make mistakes and you’re going to get burned. Don’t beat yourself up or become embarrassed if you do. We’ve all made them. Pick yourself up. Dust yourself off. And start again. Just try to keep them to a minimum.
Nothing works until you do.
Don’t get caught in the paralysis of analysis. Definitely do your homework, but at some point, you need to move out of your comfort zone and act.
Realize that in order to grow, you’re going to need test the limits of your comfort zone.
Jealous and insecure people try to take advantage of your mistakes by criticizing and ridiculing you in order to make themselves feel better. Screw them. They’re miserable people. They’ll always be miserable. In your reality, you have no time for them or their bad and negative attitudes.
Some people will step over their own mother to make a dollar. Don’t be one of them.
You can be comfortable but not complacent with your status in life. Don’t stop reaching for the next level unless you’re content where you are. I don’t know if I’ll ever stop reaching.
There is nothing wrong with being rich or having money. God loves rich people just as much as He loves poor people. Just remember to give back.
Many people will help you and never let you forget it. Most of these people give what they can spare. Few people will help you and forget about it. Most of these people sacrifice and give what they can’t spare.
Never tell yourself that you can’t do something. The only way to accomplish great things is to focus on how you CAN do them. Step back and break it down into steps. Take the first one and change course when necessary, always keeping the end goal in mind.
As you move forward, share your knowledge with others. It’s how most of us learned, and it’s why most of us take the time to pass our knowledge along to less experienced investors. I owe a great debt to all the people who have answered questions for me.
Finally, whatever happens, God loved you enough to send His Son to die for you, and He always will.
That’s my advice after ten years in the business. Good luck. If you have any other questions, feel free to post again.
-JA
P.S. By the way, I work with an investor who buys REO properties in bulk all over the country. I’m not sure when we’ll get any properties near you, but if you want me to email you when we do, let me know. If you could help me resell the property, I could coach you through the process of wholesaling it to the end buyer.