Wholesaling for Beginners #4



This is our fourth blog on beginning wholesaling. If you haven’t read the earlier ones, make sure you go back and do so.

Before you start out on your first wholesale deal, there are some things that you should take into consideration. First is privacy. We touched on this in our last blog: keeping your wholesaling fee and final buyer private. Many wholesalers will use trusts for privacy purposes. We’ll discuss this more in the next blog.

You should also be aware of seasoning issues. FHA loans and some other lenders will look at title transfers occurring within three months before a retail sale (your post-flip sale). This could affect things if you do a double close (more on that below). If they see a couple of title transfers close together, they could ask questions or delay loan approval until the property has been in one owner’s name a certain length of time.

Also understand that your wholesale fee is an “add on” fee that your buyer will pay at closing, like paying an invoice. It is NOT an increase in the purchase price because that will also affect the price the seller is getting. This is a common mistake on the assignment part of a wholesale deal. Yes, the fee increases the “cost” to your buyer, but it doesn’t change the purchase price of the house.

Earnest money can also complicate a wholesale transaction. When you go under contract and put up earnest money, remember that it will be a “credit” to your buyer at closing. So, you will either need to recoup that at closing, or you can just roll it into your assignment fee and recoup it that way. Because wholesalers usually also collect a “deposit” with their final buyer, these financial items can get confusing. There is a difference between earnest money and deposits! A lot of rookie wholesalers end up losing their earnest money because they fail to take that into account.

A double close is when you buy the property and take ownership. Then you just turn around and sell it to your final buyer. This requires TWO closings in most states, so it does up you costs some. But, doing a double close is legal everywhere (so no licensing issues) and it will hide the underlying purchase price and what your “fee” actually is. Many wholesalers will do a double close when they have a very large assignment fee, like on big multi-family or commercial deals.

If you’re doing a double close, you can go under contract with your final buyer before you actually own the house. But first, you must disclose that you don’t currently own the property and second, understand that it is a voidable contract. That means your buyer can back out at any time and no reason and you cannot hold them liable, even for their earnest money.

Remember, if you’re a licensed agent, you must use the Utah state approved REPC. You can use your own assignment addendum rather than the state form if you want. And remember you also need to comply with all other licensing rules, like disclosing you’re an agent, etc.

Next week, I will briefly outline a couple of other methods that experienced wholesalers use to facilitate the wholesaling transaction.

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
(801) 560-2180

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