Wholesale deals

[MikeT/NC 5]

I sent out 1K post cards last week and I guess they got delivered over the weekend cause my phone started ringing Monday morning.I received about 10-12 calls so far. However, seems like more would be a potential wholesale rather than a CA. Problem is I'm a little fuzzy on the mechanics of a wholesale deal. I know, (or guess) I would need to tie it up with an option agreement. But I wouldn't be assigning my option would I because then I would just be assigning it for the same amount that I have it optioned for. Would my fee just be a fee to release my option?. Could someone walk me through the logistics of this type deal?

[DanielSun 7]

I heard all you need to know is aim for 70% FMV or lower.

[MichaelC 160]

Mike, if you tie up the property with a Pure Option, you can either assign your option to the third party, or you can find a buyer and work a simultaneous closing. The direction you take should be determined by the amount of equity in the deal you optioned.

For example, a deal with $15K equity, (you have an option at $85K and the property is realistically worth $100K), might fetch an assignment fee of $5K. So your optionee still has $10K equity in the deal.

On the other hand, suppose you get that same $85K option on a property worth $150K? Would you want to let it go for that same $5K fee? I wouldn't. I'd want to be in the middle of that deal for the bigger payday at the end.

[MikeT/NC 5]

Thanks MC. I had maybe six or eight more calls today. One of the leads yesterday I went and looked at today. It's a nice brick house built in 1961. Tax value 89000. NO comps for this one. Its out in the country. However there is one very close in size, year, and looks listed by a realtor for 76000.The one I'm looking at may be a tad larger and has a four year old roof. However the AC is about 20 years old.I think it's worth about 80K ARV. I offered to do a CA for him. Also I offered to pay him 600 per month for 100 months no interest. The home would rent for about 750-800. And I offered 42K cash. I don't think he's going to bite on any of them. I might also offer a sandwich LO. I didn't get into that today as I figured I had already gave him enough numbers to think about.

Also had a girl call. She has a home that appraised for 288K last February. She owes 281K. She's pretty motivated because her payment is 1800 per month. I offered a CA and she said she'd call back. I think she may go for it. But with those numbers it would be a tough sell.

[MichaelC 160]

Things are happening, Mike! Good work.

I don't like to make multiple offers to a homeowner. For one, they seem to become confused by all the numbers and possibilities, and this means they say "No" to everything. The other reaction I find is the homeowner acts as if he is reading a Chinese restaurant menu. They end up taking a part of offer 1 and a part of offer 2. For example, the owner likes the idea of a cash offer, but not at the price it was made. So he'll get back and tell you he wants cash, but with the CA price.

I'd rather make one offer based on what I think is the best approach to take on the deal. If it doesn't fly then we can talk about other possibilities.

As for that second deal, the 9 month old appraisal probably isn't valid any longer. She pretty much has zero equity. Is she willing to come out of pocket at closing? I think that's what you're facing here. Will the rental market for her house cover her PITI?

[MikeT/NC 5]

Wow, the horror stories that you hear. People can sure get themselves in a financial fix. I've had many calls from people who own town homes. Anyone dealt with them much. I had no idea they were so popular. Also duplexes , seems like half the folks have them. I've got to study up on those two types of housing some more. I guess there would be HOA dues. Would there be some overlord to say you could or couldn't rent them out?

 

MC, I see what you're saying about confusing the prospects. After trying to explain over and over how a L/O works it does get tiresome. I was thinking about substituting the phrase rent to own in the place of lease with an option. It may be a concept they already understand and sound less foreboding.

 

I talked to one older out of state lady who I think would have went for it,but she just could not understand the concept no matter what approach I took. She had had it listed for a few months and couldn't sell and was now going to rent it out again. Sounded like a classic CA situation, but she was confused and therefore wouldn't go for it........ NEXT!!

[MichaelC 160]

I've had many calls from people who own town homes. Anyone dealt with them much. I had no idea they were so popular. Also duplexes , seems like half the folks have them. I've got to study up on those two types of housing some more. I guess there would be HOA dues. Would there be some overlord to say you could or couldn't rent them out?

Very likely there is a HOA. Ask the homeowner what they know about renting. Ultimately, you'll need to verify with the HOA directly as to what they do and do not permit in their precious complex.

 

MC, I see what you're saying about confusing the prospects. After trying to explain over and over how a L/O works it does get tiresome. I was thinking about substituting the phrase rent to own in the place of lease with an option. It may be a concept they already understand and sound less foreboding.

 

I talked to one older out of state lady who I think would have went for it,but she just could not understand the concept no matter what approach I took. She had had it listed for a few months and couldn't sell and was now going to rent it out again. Sounded like a classic CA situation, but she was confused and therefore wouldn't go for it........ NEXT!!

 

Mike, we really need to remind ourselves to keep things simple when speaking to the average homeowner. While this concept is second nature to us, to the homeowner it can be a daunting idea. A brochure or flyer with some bullet points listing the advantages of a lease purchase will be helpful.