Below is an outline to follow when working wholesale and flips in the real estate investment community.
It is assumed that you already have some knowledge about doing these sort of deals and or you are at least familiar with the concept. Because I am not familiar with all the laws governing real estate transactions in each state some of these steps may not work for you directly or the closing process may be different for you. Please consult a Real Estate Attorney when drawing up a contract.
There, I gave my legal disclaimer.
Any comments, questions or concerns
please contact me directly I always welcome other people’s opinions. If
you have a question about a flip and need some guidance then contact me
and I will assist you with it the best I can.
1) Introduction
a) What is flipping? The true
definition of flipping is finding a property, putting it under
contract, and then selling the property to another investor.
b) There are many ways to accomplish the flipping of a contract.
i) Double contracting – This approach
is taken when you come across a property that has a large enough spread
in it and you would like to protect your interest in it. If
the assignment fee is greater than $5,000 then take this approach so
the deal is not “stolen” from you and or also
hard money Lenders do not
like to fund flip fees in excess of this amount. Remember don’t get
greedy; it still has to fit into our formula if you
want to flip the deal
(Arv x 65% - repairs - c/c/cost - af = mao).
ii) Assignment of Contract – Use this approach if all you want to do is
flip the property to another investor and you are not profiting in
excess of $5,000.
2) Understanding the contract.
a) Reviewing the contract – section by
section
i) Special provisions (These are in
accordance with Texas state laws and may not apply to where you are at
check with a local real estate attorney in your area for more accurate
information):
(1) Seller to leave house in broom
clean condition, if house is left with contents in it, seller will
leave in escrow $500 for clean up fee, with an invoice to be submitted
to title company for clean up.
(2) This is a cash offer to the seller, buyer will need access for
inspections and appraisal for buyers purpose only.
(3) This offer is subject to buyers partners approval within 10 days of
executed contract.
3) Work the formula. Arv x 65% - Repairs - C/C/Cost - AF = MAO
a) Arv = after repaired value
b) Note that if an investor is using a
hard money Lender for the first
time then the Loan to Value(LTV) will be 50% and not 65% as projected
in the above formula
c) Repairs – use the evaluation sheet
d) C/C/Cost= carrying and closing cost
e) AF= assignment fee
f) MAO= Max. Allowable offer
g) Even if you decide not to wholesale or flip properties this formula
should still be considered when reviewing all your potential deals.
4) Evaluating the comps.
a) Review the comparable sheet.
b) Drive by a couple of your comps to determine accurate value
c) Review the tax record
5) Property Inspection and Bid Form
a) Condition - Assess the condition of
the house and take pictures if possible
b) Repair estimates – is a separate 3 page form that I use when making
my initial walk through so that I can determine the repair costs.
Contact me and I will
send it to you if you do not have it already.
c) Exit Strategy – When doing repair estimates keep this in the back of
you mind. What you think needs to be fixed/repaired another investor
may have another opinion or idea of what needs fixing so try to be
conservative here.
6) Carrying and Closing Cost
a) Cost
of financing
b) Closing
Cost – review of HUD 1
i) Title
policy
ii) Escrow
fee
(1) Locate
an investor friendly title company who is willing to process a flipable
contract, not all title companies are willing to work these sort of
transaction. Call around or find out this information
through your local Real Estate Investment Club.
iii) Other
charges
c) As
a general rule of thumb I always request the HUD1 statement 24 to 48
hours
before closing so that I may look over it myself to make sure the Buyer
and
Seller fees are correct and my flip fee is indicated correctly
7) Assignment
Fee – The investor needs to know:
a) Complete
address with zip code
b) Photos
of front and back of house as
hard money Lenders require this when
lending
generally
c) What
does the property need to reach max re-sale?
d) What
amenities does the property have?
e) What
is the projected cost to get max re-sale?
f) Why
is seller selling?
g) What
is your position in the deal?
h) Is
title work working or complete?
i) Are
there disclosures the buyer needs to know?
j) How long has property been on the market?
k) You
(anyone) should not expect to make a profit if you don’t provide
something we,
the Investors need to make an intelligent decision.
l)
EARN IT, AND YOU WILL RECEIVE IT!
8) Looking
for properties
a) Drive-by
b) Newspapers
c) Referrals
d) Rentals
9) Finding
owners
a) Tax
record
b) Mail
a letter to the home owner
c) Online
services – KnowX.com and Anywho.com are good to start with
d)
www.deadleads.com
- Could not resist the free plug
10) What to say to the owners.
a) Be
up front and honest
b) Determine
what it is the buyer is wanting from the sale, learn this skill and you
will be
very successful as a real estate investor
c) Creative real estate needs creative thinking in order to be
successful. Think out side of the box and you will be successful
Note: Larry works for Deadleads.com which is a owner and tenant tracing service provider that has partnered with TCI.
Word Cloud:
local work flipping please clean repairs working approach offer determine house always will another assignment properties estate money style="margin-left: front when fees flip creative take 40px;"> hard closing buyer attorney need repair willing reviewing wholesale this contract still with these seller needs deal estimates familiar process cost what property have directly make condition think sort state some back contract. c/c/cost contact title real review don’t successful doing form investor company 80px;"> what
is about buyers laws carrying investment lenders then
