Profit From Foreclosures Part 2

In my last post we discussed how the single biggest advantage associated with REO's is the fact that equity can be created instantly either by finding a hot deal or through shrewd negotiation. There is no one telling the bank that they owe too much on a property and can't lower the price.

We discussed two types of scenarios that give leverage and Empower the investor, while allowing him or her to avoid the issue of "Non-Assignability". These were "Add to the Contract then Quit Claim" and the "Simultaneous Double Close". We looked at the Pros and Cons of each...

Today we will review two other scenarios that can Empower investors to avoid the pitfalls of "Non-Assignability".

1.] The "True Double Close"

This is also known as the "wet close". It is the same as the simultaneous double close...the wholesale investor is buying the foreclosure property and instantly reselling it to the end buyer for a profit, except that the wholesale investor is coming in with his or her own cash to fund his or her end of the deal.

This makes title companies happy, but it may be difficult for the beginning investor who may not have a lot of cash sitting around to work with. There are companies that provide funding for these types of transactions. They are called "flash funding". They do same day transactions for a fee. Title companies like "wet closings", but if "flash funding" is utilized, it eats away at your profits.

2.] "Sell The LLC"

This method is becoming more popular, especially when the end buyer brings cash to the table. The wholesale investor brings an offer on a property under an LLC entity. Once the bank accepts the offer, the investor quickly registers the LLC with the state.

At that point, the investor finds an end buyer for the property. They agree on the price and agree on the terms by purchasing the entire LLC for the price of the wholesale fee. From there, as the new owner of the LLC, the end buyer is Empowered to close on the original transaction and purchase the property.

The upside to this method is that you work around the extra costs in the form of the transfer taxes and/or flash funding fees that come with the "double-close" methods. Another benefit is your name never goes on the transaction.

The downside to this type of transaction is that the end buyer has to pretty much be paying cash. Banks typically do not lend money to LLC's. You wold have to purchase the property in your personal name to be eligible for a mortgage. Another thing to consider is that if you start buying and selling numerous LLC's in a month, you might catch the attention of state regulators, who would be confused as to why you are buying and selling so many LLC's in a month.

Using good business sense, being creative with the way you as an investor structure the deal...you can navigate around and make a profit on foreclosures by "flipping" them. These methods make it easier for the investor to bring little to none of their own money to a transaction, enabling them to realize less risk, leverage themselves futher if they so desire, and maintain a level of privacy. Armed with these work arounds, investors nationwide are able to successfully wholesale flip REO foreclosures.