3 Ways on How to Wholesale Real Estate with No Equity
Is it possible to wholesale real estate with no equity? Yes. As a wholesaler, this knowledge is a great leveraging tool against the competition, because not many wholesalers know how to do this.
When the housing crisis happened in 2007, as a wholesaler I had to re-evaluate how I was going to approach the business. At first, you would think that you had to quit the wholesaling business, but I recognized instead that there were new opportunities. When one door closes, another one opens in real estate. Always. You just have to reinvent yourself.
So I started giving it some thought and it came down to structuring my wholesaling strategy around 3 main ways.
Short sales were all the talk from 2007 to a few years ago. And there are still several short sale opportunities today. Basically with short sales you “carve” out equity from a property by having the bank agreeing to accept a lower payoff of the mortgage.
For instance, if the property is worth $100,000, but the first mortgage is $120,000 or there are two mortgages, with a combined outstanding balance of $120,000, you submit a contract and negotiate with the bank (or banks) to accept a lower payoff so you can resell the property at a profit.
There are several ways to process a short sale successfully, but generally the more you can show the property or the area are distressed, the more you can get a higher discount on the mortgage balance.
Liens and Judgments Mitigation
A lot of investors are not aware of this powerful strategy. If a property is over leveraged because of liens or judgments, not because of a mortgage (the mortgage balance is much lower than the value of the property or there is no mortgage – free and clear,) the seller can negotiate with the lien holders to discount the liens considerably (or release altogether) so there can be enough equity to sell the property. As a wholesaler, when you have a seller willing to work with you, have a title company perform a full title search, then have the title company negotiate the liens with the lien holders or an attorney who specializes in liens and judgments mitigation. In some cases, you might be able to file for a “quiet title” for outstanding liens.
The bottom line with this strategy is not to try to negotiate yourself as an interested party (you would be the buyer,) but have a third party (title company or specialized attorney) negotiate instead. The lien holders are usually not willing to discount much when dealing with the seller or the buyer. If a third party states to the lien holders that if they don’t compromise, they will lose any chance of recovering any funds, since there might be a foreclosure happening (and that would take precedence over other liens,) they will work with the seller and accept what they can get as satisfaction for the lien or judgment.
An exception is about federal taxes. Those can also be negotiated or transferred to another asset, but it requires a certain due process.
Wholesaling Lease Options
Wholesaling lease options is a powerful strategy, where you combine the concept of lease options with wholesaling. I wrote an article a while back, “What is Wholesaling Lease Options?”, where I explain exactly what they are and how they work.
Basically wholesaling lease options is a strategy where you create a lease option with the seller and then assign it to a tenant/buyer for a fee.
Successful real estate investors are problem solvers. They offer solutions that create a win-win situation.
What if you could turn a potentially unprofitable real estate deal into a profitable one? What if you could offer options to a property owner instead of only one?
A student was asking me today regarding a particular deal with some issues, “Is it worth dealing with this deal or should I stay away from it?” My answer was, “Every deal is worth dealing with if you have a willing seller.”