New to the whosaling game, would like to start by locating REO’S or already foreclosed homes with about 30k equity, and a estimated 10K worth of work if any. Once located, make an offer, once offer is accepted, flip the property to a rehab investor, who will be able to close on the deal in a few days. Starting out I am only looking to make a minimum of 4K on each house. I want to use this method because there is minimum risk which will allow me to get my feet wet in this game and build my capitol up. I would like to do this without any money out of pocket for the offer, appraisal, or inspection. Question, do anybody use this method of wholesaling properties, is it profitable, and is it verily common to consumate this type of deal with a rehab investor? and do you see any difficulties with this method? Looking forward to your response
Here’s the problem that I see. Whenever I put an REO under contract they require at least $1000 deposit and more even require 3% or $2500 whichever is greater. Then, they make me use their contract that is NOT assignable. I guess you can try and do a double-closing but that requires a lot more coordination and you still have to come up with the earnest money which you will lose if you can’t pull it off.
A better strategy, if you want to assign, is to find the deals from the homeowners and put under contract that is assignable. You can usually put down less than $1000 earnest money and then you can flip to an investor for your 4K. If the deal is good enough, maybe even more.
With REO’s they almost always ask full market value. Also, with an REO, they will not let you assign the contract. I do offer on REO’s and have had luck with one or two but not many. Also, they usually require proof of funds or a mortgage prequal letter. Since you are not the end buyer, that’s always a pain.
Very rarely, will you find an REO deal that you can buy for less than 90% of asking price unless it’s falling down. If it’s falling down and another rehab investor hasn’t bought it yet, there’s probably a reason. Do a lot of research of your area, know what the homes sell for, figure all of the repairs, commissions, and holding costs into your offer and you will find some good deals. I wouldn’t start with REO’s though. That’s a very good way to get discouraged. Just telling you from personal experience. Look for motivated FSBO’s distressed sales, etc.
You may want to look for properties with more than 30k equity also. 10k in repairs can easily turn into 15k to 20k in repairs, cause who knows what’s going on behind those walls. The end investor making 10k to 20k in gross profit isn’t attractive to them, they have to pay realtor fees, interest if they get their money financed, your wholesale fee, insurance, income tax, and many other costs here and there. Rehabbers aren’t looking to make 5 or 10 thousand, too much risk for that. They probably want at least 25k after all costs are considered, so 30k in equity isn’t nearly enough for a wholesale deal.