Wholesaling at trustee sales

I often receive calls from buyers with lots of cash but nothing to buy from banks.There’s a lot of shared frustration for investors trying to find good discounted bank deals. Unfortunately, the opportunities to buy from institutions have dwindled to almost none from a year ago. Everyone wants California, Nevada, and Arizona at 60% – 65% but these discounts no longer exist. If you try buying from the banks today or Freddie/Fannie Mac, you can expect discounts of between 76% to 82%. But there are groups of investors who have devised some creative ways to get those discounts between 60% to 70%.

Before we discuss how they are doing it, let’s discuss what has changed from a year ago. First, TARP (Trouble Asset Relief Program) where the federal government gave the banks billions of dollars. Banks are flush with cash and suddenly, they are not so pressed to sell off their toxic assets as they once were at discounts us investors expect.

Second, with the government extending the $8,000 tax credit to first time homebuyers and FHA incentives, banks are simply listing properties at 80%-85% of FMV in the desirable markets and selling them! Why would they offer bulk discounts?

Third, those investors still buying from banks at steep discounts are buying only in struggling markets such as the midwest (can you say Detroit or Cleveland?). There are plenty of great deals in those markets but there are different strategies that need to be employed (a discussion for another day).

Let’s focus on the three markets that are strongest — Los Angeles (LA/Orange County); Phoenix (Maricopa County); and Las Vegas (Clark County, NV). I personally know several investors who are bringing in some very high returns. These very creative and innovative  people have put together a fully automated turnkey wholesaling program that they apply at the trustee (foreclosure) sales employing teams of investors, title companies, escrow companies to assist in the process.

Here’s how it works.

1. Investor (that’s you) signs docs and puts cash into escrow of the wholesaler’s title company.
2. Wholesaler provides investor with purchase guidelines.
3. With investors approval, the wholesaler bids on property at trustee sales that meet investor guidelines- usually 25%-40% off of FMV.
4. Wholesaler calls investor during auction to review property, values and obtain investors authorization to bid to investor established limit on property.
5. Upon successful bid, investors signs an amendment to escrow and withdraws funds to pay for property and fees. Fees are usually 6%-8% of the purchase price (the wholesale fee).
6. Wholesaler secures Trustee’s Deed in investors name.
7. Investor takes title.
8. Investor assumes all responsibilities for rehab, transaction tax, eviction (if any) or cash for keys etc.

There are services that are buying and wholesaling 30-50 houses per month via the trustee sales in these markets and they work! The key is to find the right service that fits your buying profile with a successful track record of success.  You need to make sure you do your due diligence and thoroughly review their contract agreements, sales historicals of previous purchases, and financials.

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Tagged as: Auction, Banks, Bidding, Foreclosures, REO, Wholesaling