Disclosure

  • All information contained in this document is for informational purposes only. Physician Wealth Systems LLC is NOT licensed real estate agents, certified public accountants, or attorneys. Laws and regulations differ from state to state. Please consult your attorney and licensed real estate professional prior to implementing any of the strategies or tactics mentioned below.a

Wholesaling, also known as Assignment of Contract, can be a lucrative investment strategy when done right. You are literally turning an idea or piece of paper into tens of thousands of dollars. As an investor (“Buyer”), you acquire equitable interest in a subject property by executing a Purchase and Sale Agreement with a homeowner (“Seller”). Your original agreement (also known as PA, PSA, A-B contract), must state that the Buyer has the ability to market the property and assign the contract.  Then you can assign the contract to an end buyer and collect an Assignment Fee. You are selling a contract NOT a house. Be sure to remain transparent when marketing contracts for assignment as you do not have the right to SELL the house; you do not own the house. Some states require a license to do this. 

  • Precontract
    • Working with the seller
      • Be transparent; honesty is the best approach.  
      • Understand why they are selling so you can bring them the most value possible and set the path for a smooth transaction
    • Required information
      • Subject Property Address
      • Property Type (Single Family Residential SFR, Duplex, Triplex, Quadplex, Multifamily (5+ units), Portfolio, Mixed-use Commercial, Commercial) 
      • Number of units
      • Year Built
      • Occupancy (Vacant, Vacant at close, Occupied at close)
        • Delayed possession with hold back allows the owner/tenant additional time in the property after closing. The holdback gives them incentive to get out and make sure the property is in the condition stipulated in your contract. You can set a date for possession and a fee for each day of delayed possession from that point.
      • Lease terms if applicable (Rent, length of lease, time remaining on lease, tenant payment status)
      • Bedroom count
      • Bathroom count
      • Estimated finished square footage
      • Age of roof
      • Age of furnace
      • Age of A/C
      • Age of water heater
      • Age of windows
      • Is the electrical in good condition
      • Is the plumbing in good condition
      • Does the property have any structural problems?
      • Are there any title issues? 
      • Estimated repairs
      • Asking Price
      • Market rent
      • After Repair Value (ARV)
      • Close date
      • Pictures/video
        • Upload the photos of the property into Google Photo and provide the link.  Be certain to include photos of the following (NO PEOPLE IN PICTURES):
          • Exterior (4 min.) including the roof
          • Kitchen 
          • Bedrooms (make sure each bedroom has its own entrance and closet)
          • Bathroom(s)
          • Living room
          • Furnace, A/C, Water Heater, and Electrical Panel
          • Window condition
          • Any problem areas
    • Calculating Max Allowable Offer (MAO)
      • (ARV x Market Multiplier) – Repairs – Assignment Fee = MAO
      • Market Multiplier is a number used to build in required equity. Current market conditions, type of buyer, and ARV are influencing factors when deciding what multiplier to use.
        • ARV less than or equal to $150,000: Market Multiplier = 0.7
        • ARV greater than $150,000: Market Multiplier = 0.75
        • ARV greater than or equal to $200,000 in a hot market: Market Multiplier = 0.8
        • Hedge Fund: Market Multiplier = 0.8 to 0.9
    • How to figure MAO for PWS
      • (Market Rent / 0.012) – Repairs – Assignment Fee = MAO

FREE HELP: Our Market Acquisitions Directors are here to help you. They will show you how After Repair Value (ARV) is calculated utilizing Comparative Market Analysis CMA without access to the MLS, how market rents are figured, how repairs are figured, and even how much Physician Wealth Systems can offer on the property. You can reach out to our team before you even have the deal in contract. 

  • Contract
    • Setting expectations (It is helpful to know your buyers’ requirements at this time so you can align them with the seller)
      • Walk-throughs – Looking for a minimum of three walkthroughs (not inspections)
        • Pictures typically within 24 hours from agreement execution – be sure to review your pictures and align them with your repair costs; now is the time for an addendum to reduce the purchase price adjustment
        • Partners and/or contractors – this can be multiple “team members” so we can get our Scope of Work dialed-in and ready to start the renovation as soon as we close
        • Pre-close walk to confirm property condition same day of close
      • Closing timeline – we typically like to close in 21 to 24 days; “what works best for you and your family?”
      • Condition of property – Is the Buyer expecting to take possession of the property in “broom swept” condition OR will there be personal items remaining in the property?
      • Earnest Money Deposit (EMD) – Start your negotiations low, maybe $100, with the seller. This reduces your cash requirements and allows you to have more contracts. You must have an exchange of value to make your contract legally binding.
      • Due Diligence (DD) – Is a non-refundable deposit made when an offer is accepted. This is typically done in addition to the EMD and is considered “Pay to Play”.
    • Make sure the Seller has made arrangements to move (place to go, packing, moving truck, cleanout house, etc.). Here is where you can bring massive value anticipating their needs before they realize they need help.
    • Understand how mortgage, taxes, insurance, and utilities work. You will get questions about how and when to pay and how and when to stop them. 
  • Close
    • Assignment of Contract allows the investor to collect a fee at close without putting additional money into the deal (excluding the EMD).
    • Double Close is when the investor actually closes on the property, taking title, and then sells the property to the end buyer, typically on the same day.  This can be done leveraging transactional lending for a fee of 1% to 2%. Some Hedge Fund buyers will not purchase on assignment requiring wholesalers to double close. Double Close will also conceal a “large fee” the wholesaler may be making. Some states require an assignment fee visible on the HUD 1 or Settlement Statement.
    • If there are mortgages or liens on the property, be sure to work with the Seller, title, aor attorneys to get the payoff letters in plenty of time.
    • Make sure you review the HUD or Settlement Statement with the Seller prior to closing so you can address any questions or concerns they may have. You want this to be as smooth as possible. It is a stressful time and when a Seller walks away from the table because there is $127.43 in taxes they are not going to pay, it becomes even more stressful. Unpaid HOA fees always seem to be a surprise at the closing table.
    • You can arrange for a mobile notary to make closing extremely convenient for all parties involved.
    • Confirm how the Seller would like their proceeds (wire or certified funds). It is likely they will not receive their funds until the next day unless you make intentional plans. You want to give the Seller a heads up! 
    • How are the Keys getting exchanged?
    • Follow up with Seller to make sure they received their proceeds and get a 5 Star Google Review if they are happy
    • Follow up with Cash Buyer to make sure everything went as planned and let them know you look forward to doing more deals with them.
  • Types of Buyers – know your end buyer when calculating MAO
    • Hedge Funds – a limited partnership of investors that uses high risk methods, such as investing with borrowed money, in hopes of realizing large capital gains. Definitions from Oxford Languages Generally speaking, this type of buyer will outbid all other buyers but they are more susceptible to trending market conditions. The recent market swing forced many Hedge Funds to pull out of current contracts and even stop buying in certain markets. Some funds do not allow assignment of contract. Some funds have title seasoning restrictions (seller has to have owned the property for x amount of time).
    • Landlords – also known as “buy and hold”. They still need a good deal but are likely able to pay more for properties than Flippers. Target areas may differ as well. Rent Ratio is a driving factor for Landlords as they may be more focused on cash flow rather than liquid equity.
      • Rent Ratio = (Monthly Rent / All-in Purchase Price) x 100
      • 1.0 Rent Ratio is a baseline standard
        • ($1,500 mo. rent / $150,000 all-in price) x 100 = 1.0
      • Turnkey markets are currently trending toward 0.8 to 0.9 Rent Ratios
    • Flippers – Fix and Flip investors. As seen on TV! I know when I was flipping houses I needed to purchase at DEEP DISCOUNTS to make it work. Most Flippers may need $1 in profit for every $1 spent in repairs. If you know your buyer, you can work backwards to find the MAO
      • (ARV x 0.925 (net cash from sale on MLS)) – Repairs – Flipper Profit – Fee 
    • Portfolio Investors – Investors that purchase several units at the same time typically from another investor. Create a spreadsheet with all the Required information and ask the seller for a price to purchase the entire portfolio. Submit the opportunity to deals@physicianwealthsystems.com and Market Acquisitions Directors will evaluate the portfolio to make a cash offer.
  • Working with a reputable cash buyer
    • Communication and transparency – be sure to communicate critical information such as condition of property, occupancy, seller’s current situation (i.e. probate, foreclosure, etc.), and any promises made to the seller. Be sure to communicate how the keys are going to be exchanged at close. 
    • Share A-B contract (original Purchase and Sale Agreement) – you are not selling a house you are selling a contract. The end buyer MUST see the original contract prior to executing the Assignment of Contract.
    • Closing timeline : 21-30 days (exceptions possible) – Most cash buyers can move as fast as 3-10 days but there is no need to strain their resources if it’s required in the current transaction.
    • Inspection period: 10-14 days (exceptions possible) – Most cash buyers are able to make non contingent offers if their team completes a thorough property inspection prior to submitting the offer. If the cash buyer submits their offer prior to inspection, you can give them 24 hours to complete the inspection before their non-refundable deposit is due (you have to be able to make the property accessible in that time line with the seller). 
    • Additional walk-throughs – may be helpful when trade specific contractors are required to complete the repairs.  
    • Prefer Vacant at Close in most markets (exceptions possible) – always more attractive to have a vacant property when it is a value add or distressed property. Duplex, triplex, quadplex, and multifamily are typically sold with tenants in place. 
    • Hedge Funds have many additional criteria including extended mandatory inspection periods, caps on assignment fees (if assignments are allowed), and building specifications.
  • Things to watch out for
    • Assignee does NOT submit deposit
    • Assignees don’t execute assignment of contract
    • First time out-of-town buyers
    • Not setting clear expectations with the seller or assignee
    • House NOT in “broom swept” condition
    • Daisy chained deals
    • Get EVERYTHING in writing!
    • Snakes – deceitful agents and buyers