I am trying to round up all my information to get a wholesaling business started. I have just about everything in place but was trying to figure out what all strategies I wanted to use for buying such as subject to, contract for deed, straight cash, etc. I feel a little overwhelmed looking at all these and really don’t know all the legalities of each. Would I be limiting my business too much if I went strictly for high equity deals to wholesale to cash buyers?
What’s the alternative to high-equity deals if you’re wholesaling. I don’t understand.
Well I have heard of deals that can be sold with little to no equity through contract for deed or lease option where you make a spread on a down payment that is made. That is what I was referring to versus selling to a cash buyer.
I see. Well, yes you can sell a low/no equity deal on a contract for deed, or some other installment note, and capture the spread. However, this will likely be a sale to an end/user buyer, not a wholesaler, or rehabber.
Rehabbers will buy under all sorts of terms as long as there’s enough equity in the deal to make it profitable. But low/no equity deals are not going to be interesting whatsoever to a wholesaler or rehabber. Just saying. Otherwise, where’s the upside on a low/no equity transaction?
Meantime, anytime there is a transfer of the deed, without paying off the existing loans, it’s considered a “subject to” financing deal. If this is what you want to do, and the deal makes sense, then do it.
Most of the time, however, a Land Contract/Contract for Deed is the safest route when selling a property where the deed of trust is not being paid off. Why? Because in most states (not California) the deed is held by the seller, without a transfer, until the buyer pays the seller off.
In California however, the deed is constructively delivered regardless. As a result, if the buyer were to default, it would require a full-on judicial foreclosure, like any defaulted deed of trust would require.
So, using a standard Land Contract in California, for example, has no advantage for the seller. In that case, an Option to buy is more practical with the option consideration being roughly equal to the payments on a standard, interest only note.
Does that help?
For a beginner who’s still trying to get a hang of the business, I think you’d be better off sticking to deal with properties with high equity, preferably 70-100%. You’ll always learn other things along the way. It’s not like you are limiting your business if you do that.
Allen
Since you are starting out I would recommend you start with one thing, master it, and then learn something new to add business. I recommend that you learn to deal with high equity houses.
The safest low risk way, to get started in this business with no skin in the game is to locate homes that have tons of equity, usually those homes we refer to as junk houses. Visit your low to moderate housing neighborhoods where you can find vacant properties by the dozens. These homes you will be able to purchase at a steep discount, because more than likely the home will need repairs. The cheaper you buy the bigger your spread becomes. So in all you would be better locating high equity to flip to cash buyers. :biggrin
To your success!