Tax Consequence on a Wholesale Deal

I got a house under contract for $57k selling for $63k. Buyer wants me to write Contract to sell for $97k and then give back difference after closing. He’s going through a Mortgage Broker who found a lender that will do that deal.

The Owner of the house has Quit Claimed the House to Me (she’s a friend of mine) but she doesn’t want anything to do with the buyer’s arrangement…

My questions are…

  1. Is it legal to give that money back?
  2. Would this be a taxable event where I would have to pay Capital Gains on the $97K?

any input would be appreciated! Normally, I would only sell to cash buyers or those using Hard Money lenders.

You are going to be taxed on a sale of $97K. I don’t mean to be rude, but are you nuts? Keep it simple and legal.

Da Wiz

I feel kinda ‘nuts’ on this deal. I was told to 1099 everyone involved -Seller gets a check & 1099, Buyer gets a check & 1099 and that would keep me from being liable for Capital Gains, guess I need a CPA OR another deal.

My question is, who is the lender that would be willing to do so? Secondly, the waters you are treading are very risky. Is the appraisal value there? Cash out of closing is always in the grey area. To my knowledge, everything involving any finances must always be displayed in the HUD. I would consult with a real estate attorney before moving any further. However, I am extremely curious as to whom this particular lender is.

Thank you for the reply. I don’t know who the lender is, yet, and I’m gonna bail on this deal. -too risky for me, no one has advised me to go for it, other than those I don’t trust…

thanks again for the reply, it’s appreciated…

Dave

Not a problem. Good luck with everything.

I totally agree with everything being said about keeping it legal… I have heard of people doing them though with a lender allowing it as long as it was stated on the HUD-1 form. Can somebody verify anything on this?

Either way, good luck. Happy Hunting

Thanks, if I understand you, the HUD had the money going back to buyer on it? I doubt they’d go for that, but I’ll run it by them.

I’d like to get the seller on the HUD too, but not sure how I could do either.

sigh. thank you to everyone’s advice, I keep running into buyers who “need rehab funds back after closing”

why don’t they just get a conv. loan to buy the house, then refi for a construction loan?

If you can prove where the finances are going and show that the money is going to the seller for legitmate construction purposes then it should go. You will need to find a lender who is ok with these type of practices. These particular lenders do exist however, they all have their own requirements. I do have a particular lender who will allow cash-out refi’s up to 95% LTV the day after closing. This provides the buyer with a legitmate way to obtain the equity fast after closing and do so legally. This particular lender will also allow you to use the original appraisal from the first transaction.

PM me more info on the lender.

you cannot give back money outside closing. Everything has to be on hud.