Hello
I know that when you buy a wholesale property, you do not need any cash, credit etc. My question is do you need cash/credit if you buy a property that you would like to rehab instead of sell wholesale right away
If you have no cash or credit
(1) How will you pay for the property and closing costs?
(2) How will you pay for the rehab?
(3) How will you pay the holding costs?
Hi Tasman,
The idea with wholesaling is to make small, quick cash and leave the more substantial profit for the person doing the deal (funding it, taking the risk, etc).
When you are going to rehab the property yourself, you don’t have to have your own money, but it will take money to actually do the project.
You’ll need: purchase price, rehab costs, holding costs (utilities, property taxes and insurance), and closing costs…plus a contingency reserve for the “just in case”.
There are several options for obtaining these funds. You can partner with someone who is interested in doing a real estate deal, doesn’t have the time, but does have cash or a home equity line of credit. You can use credit cards (assuming you have sufficient available credit to cover all costs). You can use a hard money lender (you’ll likely need to come up with some funds still). You can use a private money lender…similar to the partner listed above, except instead of splitting the profits, you pay them a straight interest rate.
There are many ways to fund the deal…those are a few to get your brain rolling in the right direction.
In general, when you’re the one doing the deal, you take on more risk…and the good part, more reward in the form of profit! :beer
Stacy
Wholesaling/Rehabing is not a good idea at this time. Now is a time for cash buyers that can get properties at a steal under 50% LTV. Yes, those deals are possible. I do them everyday. When you have the cash to ‘play’ with, you can get what you want. Builders, banks, and sellers are hungry… or thirsty…
This is a phenomenal time for wholesaling and rehabbing - as long as you’re doing it in a market and with an ultimate exit strategy that makes sense.
I’m not sure where LuxuryHomeREI lives…and perhaps it’s not a good time there.
For example, I live in California but invest in several low priced foreclosure markets outside of California. When I purchase, rehab and re-finance the property, I expect to be in no more than 60% of ARV. That is the kind of market that works for me.
If it works for me…then it would certainly work for other investors who I’d be wholesaling to.
I’ll give you an example of a deal right now. This wasn’t a wholesale deal, but I’ll show you the actual numbers and discuss how this would be different if it had been wholesale.
I purchased a property in Kansas City, MO from a motivated REO bank for $13k. I’ve put $11k in repairs into it (mostly cosmetic). The ARV of the property is $65k. I have it rented out for $600 per month. I am selling this as an “investor flip” to another investor for $50k. I have the time and knowledge to do the deal. My end investor works full time and wants real estate but doesn’t have the time or knowledge to deal with interviewing power team, coordinating rehab, property management, etc. I’ve sold them a performing cash flow property, with a one year lease and professional property management in place. I’ve also sold it with $15k of equity still in the deal to ensure it cash flows sufficiently for them. After expenses I’ll net about $22k. Not bad.
If I had chosen to wholesale this deal to that same investor, I’d have assigned it for $5k or sold it outright for $18k and let them do the work and have a substantial equity position.
This is the kind of deal I do over and over…so I think it’s a great time to do both rehabbing and wholesaling.
Now…if I was talking about doing the same in Orange County, CA, I’d have a very different opinion.
Just a thought…
I said it’s a great time for cash buyers who have lots of money to dispose of (disposable income). Like I said, I have acquired a lot of properties through wholesaling etc. It’s not a good time for someone with no cash or credit.
I actually live in LA
Good post Stacy. Excellent time to be wholesaling/rehabbing. Actually its the perfect one-two punch no matter what market a person is in,
Nate-WI