Karma,

It depends upon the type of wholesaling you would like to do. If you are looking to buy recent foreclosures directly from a bank before those homes are offered for sale by a broker, then it will be very difficult to set up that type of relationship in the current market. The vast majority (if not all) banks are overwhelmed in their loss mitigation/REO departments, & the virtual "assembly line" of NOD > Foreclosure > Listing of a property is running at full capacity. The employees operating within those departments are trained to not stray from current protocol to maintain maximum efficiency. Your only realistic option is to purchase homes at trustee's deed sale (see below).

On the other hand, if you are looking to purchase from a private seller (builder, developer, group of investors, etc.), your most viable option is to establish local connections. These are the transactions that are most often negotiated within the confines of professional or personal relationships (it's about "who" you know).

Either way, you should consult with an agent located in the area in which you're looking to purchase. You may be able to work with an agent who is willing to consult rather than charge a variable commission. This will help you estimate your costs much more accurately. It is very easy to see that a property is well priced, compared to former sales prices or loan amounts. But, if you are looking to flip a property, there are many factors affecting your profit potential:

1) You need to know about the neighborhood. Are the properties you're looking to acquire located in a "declining market," as determined by a licensed appraiser? If so, it will be difficult to anticipate the appraised values for future buyers. And, you may not think that appraised value will matter to cash buyers, but I have a many cash clients right now who know that they can use a conservative appraisal to their advantage. So, your margins are variable on a property located in a declining market.

There are countless examples of "great deals" in the marketplace right now, but that does NOT make them all conducive to flipping. A house sold at $1M in '04 my be priced at $500,000 now. Even if you could buy the property for $400,000, you need to know that you can re-sell that property for a minimum of appx. $435,000, depending upon property condition, just to break even. Wholesaling boils down to the numbers on every property individually. It's imperative that you know each & every factor affecting your purchase decisions.

2) There are a variety of tax- & financing-related implications that need consideration before purchasing. For example, Nevada charges a transfer tax (RPTT) for every property purchase that occurs of appx. .51% of the purchase price. So, if you were to purchase a property at $200,000, your RPTT would be appx. $1,020. It's possible, but not likely, that a seller would split this fee 50/50. If you were to re-sell the property for $300,000, the fee would be appx. $1,530. It's possible, but not likely, that a buyer would pay 51-100% of this fee. Also, FHA requires 90 days' seasoning before a new FHA-backed loan can be funded for a property, & heightened restrictions for up to 1 year from the former sale date. Fannie May just implemented a new policy for REOs: purchasers of REOs may not sell the property for more than 120% of the purchase price within 180 days. So, if you were to purchase an REO for $200,000, you could not re-sell the property to a buyer with Fannie-backed financing for more than $240,000 unless you hold the property for 180+ days (longer restrictions may apply). After expenses, it would be very difficult to retain a profit in this case.

3) To have bargaining power, you need cash in-hand. Financing, especially for investment purchases, is very tricky today. Any seller willing to give you an incredible price will most likely require cash for the full purchase price, not just the 20-30% you would need if financing. This is not to say that you can't finance. You could obtain a line of credit to use as cash, but you will likely need secured assets to qualify for this type of financing right now.

4) Purchasing at a trustee's deed sale is an option, but you will need to fully research the title report for each property of interest. This is highly labor-intensive since many properties listed for a sale will not fit within profitable parameters for various reasons: (a) many properties do not actually make it to TD sale since the owner works out a deal with the foreclosing creditor, (b) nearly universally, there are multiple liens on a property by the time it goes to TD. As the purchaser, you acquire the liability for all underlying liens.

Sincerely,

Linne Karstensson
Owner, OwnLakeLasVegas.com
Direct: (702) 525-9492
Email: Linne@OwnLakeLasVegas.com
Web: http://www.OwnLakeLasVegas.com

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