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Ok…so great news… I’ve got my first option contract! Someone responded to my CL add. The owner only owes 8K and was told to walk away! He has moved out and lives in assisted living. He and his son called me for help. The house is in great condition and only needs paint, carpet and clean up. I was thinking I can’t sell this as wholesale because it’s such a nice home (3bed/2bath 2100 sqft)in great a area. Homes in the area are worth 200K-265K. Recent sales were 205K, 215K and 244K. Well I got the house under contract for 125K. I was planning to sell for 175K to cash buyer or perhaps do a HBS after we clean up. I just want to be sure that since the owner and I have signed a contract for me to purchase the home…can anyone swoop in and take the deal from me? I have three investors asking me for the address but I want to be sure I do have it locked before I tell people where it’s at. Do I need to record anything? Also..is it realy as easy as taking my contract with owner and my contract with buyer to title and everything is a wrap from there? I have done a title a search and there are no leins or judgments but the taxes are due from April. What about those taxes due? I may have the popential to make 40-50K on this one deal. CFD members, please respond with your thoughts.
Arcinio
Congratulations on your first option deal — sounds like a great one!
One thing you have to be careful of with “buyers” is that many of them will want to get a contract then do the same thing you are doing and try to wholesale for even more.
You do not want to deal with anyone who does that.
Before you give out the address, you need to see a proof of funds letter from their bank or private lender fpr the amount you want to sell it for. Call to verify that it is for real and not just one they made up. No big mortgage company would accept a contract from anyone unless there was a proof of funds letter and you should not do so either.
Then, and only then, should you give out the address.
If you have built up a good relationship with the seller then you should not have to worry about anything. If the seller seems flakey, then you may want to record a memorandum of option against the property. You do NOT want to record your option.
let us know how it goes
Jackie
If you record the actual option, you option price is revealled. A memorandum simply states that you have an option on the property but does not show for how much.
If you are going to do a highest bidder sale, you need to tell the seller about it and get his approval.
do not do a HBS on Memorial day weekend. better to do the weekend after that
Oh yes we agreed on a Highest Bidder Sale. We set a base price of 125K. I was thinking that’s what you meant about the memorandum. I’ll see if I can record that. Each county is different on what they allow to record. My plan is to do a HBS sometime in June. I spoke to the owner and he will give me the keys and allow me to do what ever is needed starting next week. I plan to paint, install carpet and replace two toilets. I know by doing this I can sell at a closer to retail price. Other than that the house is in excellent codition. I am confident it will sell for at least 170-180. The last sale two weeks ago on the same block was 205K. I am also doing lots of work to clean up, help the owner sell his stuff,yard sales, move things to storage and rent a garbage container for trash. He will pay for everthing except carpet and paint. I offered that part. The starting bid will be 89K
One other question…. Would you suppose I should ask for proof of funds from every one that wants to bid on the bidding days?
Arcinio
you really should NOT do any work to the house. It is not necessary.
You need to get an inspection report on the house so the people know what they are getting and will not want to make their contract contingent on an inspection.
You only need proof of funds or a financing approval letter for the highest bidder
Sorry to hijack this thread, but I am trying to understand what is going on in this deal. Am I correct that the inspections report is because the OP is going to do an HBS to sell it— and isn’t something that would normally have to be done if he was just going to turn it over to another investor/ rehabber to purchase?
In other words, how much due diligence is required of the person writing the option, vs. the buyer that they have lined up to assign the option to? I’m reading the “Steroids” book but can’t seem to wrap my head around the idea of me NOT having to pay for home inspections, title searches, environmental reports and surveys, etc before putting it under contract???
— S.
Lotus
Yes, you only need the inspection when you are doing a highest bidder sale.with a straight option deal you do NOT need to pay for or do home inspections, environmental reports or surveys.
you will want to invest in a title search after you get the contract.
however, when you get an option, you still need to do your own due diligence to determine price of property after repairs and the estimated repair costs. Without these two numbers you cannot make a realistic offer and atttract buyers at a price so you can make a profit.
Sure Jackie, but I feel my work (paint, clean up and carpet) may attrrach more buyers and better ones at that. I remember you mentioned to me that you once added carpet to a house the night before the sale. I understand I may do nothing and can still sell the house but doing just those three things can make a difference when I start the bid at 89K. I’m not sure…I may just clean up and sell as is with an inspection report. Perhaps the new owners may want to pick their own paint and carpet. The tiolets are real nasty though and need to be replaced. Carpet is going to cost me $2,000, paint $600 and tiolets $125.
I know most investors don’t put out their own money but these things can make a difference. The owner has no money to put forth. What should I do?Arcinio
you can also spend money to do all those things and NOT produce a buyer. The objective of the game is to REDUCE RISKS ( not lose money)
Until you get a better feel for he market and what people will or will not buy, I would advise you to NOT spend any money on fix up. You can remove trash and clutter but do not paint or add carpet.
You’ll find, over time, that you’ll make just as much by NOT fixing up the house as you do fixing up the house. Plus you can do the deal a lot faster if you don’t take time to do the fix up.
Sell it as is where is – with a highest bidder sale.
Jackie, after thinking about it…I came to the conclusion not to fix it up. I will just clean up and do the best without spending any money of my own. The new owners may want to pick out their own carpet or flooring, their own paint to their liking and make it their own home. I know this house will sell even as is, yet I thought…what if I invest 5K and IT DOES NOT SELL? That thought was scary and too risky to even go there. So a HBS as is, is what I will do.
On another note: I went to my local title company and asked if they would do a “double close” escrow. She said no, but they will do a simultaneous close with a disclosure that states I never personally owned the property. The escrow officer said I cannot use other people’s money within escrow, hence a double close is not possible however…if I say simultaneous close with a discloser then yes it’s possible. I must state in the escrow paperwork that I do not own the house in order to make it happen. I guess it’s a matter of how you say it and write it up. So with this deal I’ll do the HBS, get a qualified buyer (highest bidder) and take my option with owner and contract with buyer to title for a “simultaneous close with a disclosure”. Hence, I should not need to come up with any funds for escrow and they said they can close in 7-10 days. Am I missing anything else?
Not missing anything.
I’m glad you are NOT fixing up the house!!!! ( you need to listen to 16years of experience)
So, the Highest Bidder Sale will be June 2-3. It is not too soon to get it advertisied, put out fliers, get a sign in front of the house, recruit help, etc etc.
suggest you listen to the conference call with Patti McGregor to hear what she is doing for her HBS
Every time you do a deal, think… how can I reduce risks and avoid losing money. If you don’t have any money in to the deal, you can’t lose any money. Do not start investing your hard earned money in to deals until you have a lot more experience. Until them, just do options with less than $100 at risk on any deal. That is how you avoid risks.
It’s better to make less money selling as is, then to put thousands of dollars at risk which you may never get back. In time, you will build knowledge and confidence and can gradually invest more money in to deals. But until them, always think, how can I reduce risks and avoid losing money.
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