Okay everyone, this is my first post…
I came across an investor in my area and he is looking to go completely commercial. In other words, he is looking to sell all of his residential rentals that are already tenanted. He realizes that we are just starting and he would like to help us out. So he doesn’t care if we wholesale these properties for as much profit as we can get He has just said what he wants for them. So I am looking at three properties specifically…
1 is at FMV for 39k and he will sell for 30k
1 is at FMV for 50k and he will sell for 37k
1 is at FMV for 62k and he will sell for 47k
Now these are all tenanted and need no fix-ups except for maybe paint. I am looking to make 5k on each deal. I have potential buyers ready I just want to make sure that I am not doing anything illegal. Wholesaling is taking a property and assigning it to another investor under FMV. Now doesn’t that other investor have to add value to that property?? And if the other investor doesn’t add value then does that make it an illegal flip?
You guys get my question?
Understand your meaning. You do not understand Illegal Flipping.
Illegal Flipping is when several people (normally 3 or more and generally including an appraiser) join together in a conspiracy to do a series of quick transactions among themselves to artificially inflate the apparent market price of a property, normally in a bid to obtain a loan from a bank which is higher than the true value of the house.
If you buy the house at below FMV, then sell it to someone else who buys it at below FMV, then even if he sells it again at or below FMV you have not artificially inflated the price to above market values. Of course, this is assuming that the FMV numbers you are using are solid and not overinflated by someone who doesn’t know what they are doing or is trying to pull a fast one.
What you are describing, in which several people buy and sell the house in quick succession at below market rates happens relatively frequently, and legally, at the investor level. The key is it is happening at prices below the true FMV (Retail) of the house. It is when you have several transactions, and the final person tries selling above the FMV, that you are in danger of being invlved in an illegal flipping scheme.
Thanks Salverston, that helps. For some reason though I thought that the person you were wholesaling to had to add value of some sort (even if just simple cosmetic) to legalize your flip. I could be wrong.
Do you feel that selling at 35k when the FMV is 39k justifies a sale below market value? Also, do I need this 39k in writing from an appraisal or can my own comps of sold properties in that specific neighborhood with an average price per SQ. FT. ratio multiplied by the SQ. Ft. of the house be enough justification?
A very easy way to look at wholesaling is your like a real estate cupid. You find a buyer who is looking for a property to love, and find a property who is looking for a buyer to love it. and you put them together for cash.
No value needs to be added, though as a investor I wouldn’t touch any of those deals, but that’s just me.
Best of luck