Investors who wholesale or sell real estate perform the same basic task that real estate agents do. Specifically, the “flipper” investor purchases real estate or places properties under real estate contract with the intent of immediate resale for profit. The flipper connects with motivated real estate sellers and negotiates a contract to purchase the property at a price substantially less than the current or “retail” price. The sellers of such properties are generally FSBO (for sale by owner).
Once under contract, the flipper acts as principal and middleman, buying at one price and then reselling the property contract to real estate investors at a higher price. Investors buying such contracts are “hard money” cash buyers. The entire time frame from contract inception to contract sale and closing is generally 30 days. A real estate license is not required for these transactions because the investor is selling his or her own interest (as buyer) in the contract to a third party.
Pinball machines generally fall into three categories: Explorer, distributor and retailer.
one. explorers they are basically information gatherers. They locate potential deals and sell the information to other investors. The Scout finds a property for sale, collects the necessary information, and then provides this information to investors for a fee.
two. dealers also locate real estate deals for other investors. They look for properties on sale and sign a purchase contract with the owner. The dealer has the option of closing the property and selling it outright, or simply selling the purchase contract to another investor. In this way, the merchant actually controls the property in question. Dealers will put down an earnest money to secure the property like a normal real estate transaction, but there is more risk associated with it. The risk lies in the fact that the trader will not find an investor buyer in time before the contract expires, so he will lose the security. On the other hand, there is more earning potential than a headhunter. To minimize risk, dealers will often pre-qualify investors/buyers for certain types of properties before executing a purchase contract.
3. Retailers they are investors who intend to purchase the property as a ‘fixer-upper’. They will employ the services of a Scout or a Realtor. The objective of the retailers is to buy cheap, invest money in rehab on the property, and then resell the property at a price higher than cost. The disadvantage is the initial investment of the purchase money, the cost of rehabilitation and the time to resell the property.
The following is a general summary of a typical “wholesale” real estate transaction:
o A purchase offer is made to the seller. Offers are often below normal market values. The consideration is granted in the form of a security deposit. The purchase price is generally below market values. Cost of repairs (if applicable), comparable property listings (comps), closing fees, and resale price (Markup) are additional factors to consider for the transaction.
o Start title work. The property in question must be clear of title doubts to ensure a quick liquidation for the outside investor.
o Find a buyer/investor if one does not already exist. In many cases, this process is done before the first step (purchase offer). Property must be aggressively marketed for quick resale. Qualifying a motivated investor who is ready, willing and able to buy is critical. Ads can be placed in the classified sections of newspapers or listed on the Internet. Direct contact with investor sources should also be employed. Contacting investors directly can be effective in addition to advertising, rather than waiting for someone to read the ad and ask. Compensation values are typically prepared in advance to show how the subject property stacks up on the market. The investor can also carry out site inspections.
o Agreement with a potential investor/buyer. Sometimes there may be more than one interested party. Whatever the situation, the flipper will negotiate a selling price that is marked above the original contract price. The final resale value of the original contract must take into account the profit margin of the fin and the value that an investor assigns to the property. It is equally important to qualify the new buyer in terms of time to close and funds available to purchase. As mentioned above, serious buyers/investors are cash buyers. If both parties agree on a price, the original contract is modified and resold to the new buyer.
o Enter into a new contract with the investor. In most cases, the original contract is assigned to the new buyer. A deposit is charged to the buyer. The assignment of contracts usually has addendums or added statements of assignment and deposit.
o Title and Settlement. The original purchase contract and contract assignment are typically sent to the attorneys involved and the closing agent (usually a title company). The title company will schedule the closing date. At closing, the gross amount of the flipper fee (assignment contract price less original contract price) will be included in the closing documents as “other fees.” This is the amount paid to the flipper at closing.