Here’s a winner! I love a good trashed house. I guess psycologically I associate a nasty mess of a house with a huge check.
Here’s a condemned house I tied up and will wholesale by assigning my contract. I met the seller there on Wednesday and within 20 minutes or so had a contract.
One of biggest fears new investors tell me is they don’t feel confortable knowing whether or not they are going to be accurate on estimating the repairs. Get that number wrong and you’ll either leave too much money on the table or you won’t find a buyer because they’ll think your delirious on your repair numbers.
Here’s how I do it for a trashed house, and how I did it on the spot to get this offer accepted. 20 minutes to sign the deal = 7,000 check a week later! Schweeeet!
Let me clarify a bit on yesterday’s post. I referred to a trust as an “entity” and in reality that implies it’s a “corporation” or the like. It’s NOT.
What is a trust? Many folks have a hard time understanding trusts and often confuse them with a corporation of some sort – (sometimes me too when I’m writing).
A corporation is a distinct legal entity that is separate and stands apart from it’s owners (if I own GE stock and GE gets sued, I am not Personally liable in the suit) – A TRUST is a not a corporate entity – it is a legal arrangement; a contractual agreement by which a party holds title to something for the benefit of another in a fiduciary capacity – meaning one person is responsible for dealing with another persons asset(s).
Land trusts are what we deal with to hold title to Real Estate. Land trusts are Revocable, Intervivos trusts. Let’s define the legal gobbledy-gook:
Revocable means it can be cancelled, changed, terminated.
Intervivos means literally “between the living” – or in people talk, it means it’s a trust used while we’re still alive. Not to be used beyond our lifetime or created as a result of our death. That’s no fun.
And PLEASE understand, I am NOT an attorney. I may not get the “exact” definition right by uptight legal standards, but hopefully, I can help you see through some of the “muddy waters”.
4 important parts of a Land Trust:
Grantor – giver
Grantee – receiver
Trustee – someone you trust – they sign on any paperwork for the trust.
Beneficiary – person who benefits now or in the future from the assets in the trust
If we go to contract on an REO as a trust, the Grantor is the Lender – the bank that owns title currently and will deed it to us at the title company as a part of the closing (purchase).
The grantee may not be in the trust document, but it’s on the deed. The grantee in Colorado is the trust name. In other states it could be the Trustee of the trust.
example, Countrywide deeds to 123 Main Street Trust or Countrywide (grantor) deeds to Tom The Trustee or the 123 Main Street Trust (grantee).
The Trustee is the person who would sign all the documents at a closing to first acquire the property and or to sell the property.
The beneficiary is the person(s) who get the benefits of the asset (real estate) owned by the trust.
To boil it down the simplest – a Trust is just a piece of paper – an agreement. So and so will do this and so and so will do that and so and so can’t do anything unless the right someone tells them to.
In the case of real estate, atrust takes Real Property and by placing in the trust, the beneficial interest becomes Personal Property.
We create a personal property transaction (sell the beneificail interest) and then the same trust closes per the contract.
Clear as Mud!
Let’s call this a Wholesale-sale, Lease Back-Sub-Lease (with a lemon twist). Ok there’s not really a lemon twist, but I like to quote from “LA Story” every time I have a ‘complicated’ order so to say.
I think (assuming you’ve read this blog from the beginning posts) you understand the concept of wholesaling a house for an immediate cash payday. You can tie it up with no money, without need for credit and be able to make several thousands of dollars for your efforts.
Now, let’s make it more profitable. Let’s still keep you away from the banks; protecting your credit, and still avoid the need for cash.
Here we go…
Lets start with the wholesale. We first go find a deal to wholesale. Instead of our atypical buyer who will fix-n-flip the property or buy, fix and hold – both of these guys know the game – we’re going to sell this to a more “passive” real estate investor. Someone who lets say, works the 9-5er (or likely more), they have income from a job, they have credit and they own a home, but that home is really the only write-off they have. Give Uncle Sam a dollar and he gives you back 30 cents. What a deal for our corporate slave.
Being a corporate slave is hard work, and the last thing they may want to do after leaving the grind-stone is “working” a second job.
Here’s how a deal might look…
You find a wholesale deal. You wholesale it to the W-2 wage earner. You then Lease-Option the property from them and offer them a guaranteed lease payment (below market value, but completely covering debt service).
By taking an active roll in the “management” of the property our wage earner can deduct all the tax benefits of rental property (unlike hiring a managment company). They can depreciate the property (a paper loss) plus the mortgage deductions and they effectively have no management hassles.
For the investor – YOU – you get an up-front flip profit! Cha-Ching! And you get monthly passive income from the spread in what payment you make to cover the debt (in the form of a lease payment to the owner) and what you get from the sub-tenant, and you can line up a future payday when your sub-tenant buyer exercises their option to purchase.
You build in many paydays for yourself – wholesale cash profit, escalating passive monthly income, up-front non-refundable option consideration from your sub-tenant buyer, back end payday when you tenant buyer buys AND you have an investor who you can show how to “reinvest” tax free into ANOTHER of your wholesale deals.
For your investor – they would get the tax benefits – the ability to write off up to $25,000 off their earned income (this would likely take several deals/houses to get them to that limit – nudge, nudge, wink, wink – sell one passive investor and get many deals out of that one individual), you offer them a “back-end” profit as well when the house gets sold, and you can show them how to 1031 (tax free exchange) into anther wholesale deal you find for them (or 2) so you can make them alot of wealth over time, allow them to have more spending money today without begging the boss for a pay raise and you help them become wealthy. All the while, you avoid banks, avoid using your credit and create many pay-days per deal and many more pay-days by building a relationship with someone trapped in the rat-race.
Everyone wins! The way business should be!
Right now our wage earner can likely get 3-6 deals done with you before the traditional financing market shuts them down. There are other financing avenues for them, but at 6 (married couple – likely has one primary shared in both names, then 3 more in our wage earner, and maybe 3 more in the wage earners’ spouses’ name) they will likely cap out at the max deduction anyway. If you get the houses re-sold after a year or more in title, then by showing them how to exchange (1031) you can actually increase the velocity of their wealth, and build in more cash paydays for yourself. Once they sell one, you go find another wholesale deal, wholesale it to them for cash now and still have a property to make future passive income on and future back-end paydays on.
Who do you know right now that would benefit from you doing a deal like this for them?
Your wholesaling houses mentor – and your host on www.localmentor.com
Ok, the last video was about a rarity – it wasn’t a mess. I have wholesaled several houses that were in decent shape, but MOST of them have issues. Serious issues sometimes.
Here’s one I wholesale flipped back earlier this year. This was a total train wreck. Check out the video:
Did I tell you or what? What a mess!
Can you believe people were actually living in that up to a few weeks before that video was taken. Gross!
Ugly as it was, it took more time to go down there and shoot the video than to do the entire deal. Sometimes I don’t even look at them, but since this was a flat(ish) roof – common on some in the area, I wanted to take a looksie.
This is a cookie cutter 1000 sf house – or thereabouts – and typically you can take a pretty trashed version and make it tip top for around 20,000 in rehab. This thing, needed around $35,000! Much more serious rehab with the roof.
I called 3 serious buyers on my list personally and sent them over to see it. I didn’t blast it to everyone since I knew this one was going to take the right person with the right experience.
I got a quick yes from one of them. In fact, at 5:00 I was faxing my signed agreement to the title company. by 5:15, my buyer called me from the property. I was trying to get to a social bike ride thing supporting my next door neighbor who’s an insurance agent, pick up some folding tables for her at church, and in the process took my buyer’s call, worked out the details of the assignment fee and got the verbal agreement done. This is a buyer I have a longer relationship with and if they say it’s done, it’s done.
We inked it first thing the next day and faxed the assignment agreement to the title co. This was Friday.
Monday morning, we closed the deal. Frankly the broker – yes there was a broker involved on this one representing the seller – he couldn’t even believe we closed it that quick.
Round trip drive time to house: 35 minutes
Time at the house: 5 minutes
2 phone calls with sellers broker working out price: 3 minutes
going to the closing (optional, but they have good coffee and cookies): 30 minutes with travel time
Wholesale Assignment fee check: $7,500.00