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Wednesday, 16 December 2015

Jeff Adams Real Estate Investing: Why Wholesaling?

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The business of wholesaling is not just a trend in the real estate market. It is progressively gaining momentum and popularity with both new and old investors in the market. Investing is foreclosures offers quick deals for quick profits. The basic idea is get in, get out, and get paid.

Because it offers many advantages to the wholesaler, this type of investment is very attractive. No license is needed so just about anyone can do it, it involves a quick turn around time, and it gives the investor more personal time. Investing in properties that have been foreclosed upon also has unique criteria. It is much targeted and works in every market. It also has the built in problems of the homeowner losing the house and the bank wanting to get rid of it which gives an investor an advantage.

By definition, real estate wholesaling is the entering of a contractual agreement with another party for the purpose of purchasing property, and then assigning your interest in that contract to another investor for compensation.

The actual process of foreclosure varies depending whether a state is judicial or non judicial. The former requiring legal action and the latter not deeming it necessary. In non judicial states, the borrower can grant the power of sale directly to the lender. After a borrower fails to make several payments on a loan, a lender files a Notice of Default (NOD) and the foreclosure process is put into effect. After about three months, the lender files a Notice of Sale (NOS). The house is now in control of the bank or Real Estate Owned (REO) for twenty one days until the actual foreclosure sale.

As with any investment or business venture there are pros and cons when investing in a foreclosure. When buying foreclosure properties, a real estate investor can either approach the homeowner directly, purchase the house at a public auction, or buy it from the bank. Approaching the homeowner gives you the ability to negotiate terms and offers huge margins for profit, but there are title, liability, and legal issues involved.

Public auctions give an investor huge margins for profit but an investor has needs to make the purchase with all cash and usually there has not been an inspection and at times an eviction prior to the auction. Buying from the bank may not offer as much of a profit margin and or terms to negotiate, but it does offer the investor a sense of relief because the house has been subject to a full inspection and there is no title issues assignment.

Often times, foreclosed houses never make it to the public auction. This partly because homeowners have a variety of options they can use save their homes before they are sold publically. An investor could have made them an offer, any bank could refinance their loan, they could sell it with a realtor, or they could take out a second mortgage.

Once you have made an offer on a house and it has been accepted, you can proceed to write the offer with you as the Trustee, with the exact vesting to be determined. The terms and conditions of the purchase and sales agreements are understood and agreed upon by both parties and signed, and ownership of the property belongs to you. The next plan of action is finding a buyer to purchase your vested interest in the contract.

Banks usually have a “No Assignment” clause but there are ways of getting around it, so that you technically never receive title of the house. Using a land trust is one such way. A land trust is a contractual agreement between two consenting parties. The agreement is between the party that creates the trust and the party that agrees to hold title to the trust. The grantor of the trust can also be the beneficiary, which gets full rights and benefits of the property. The trustee on the other hand is just the name on the trust agreement and therefore does not have title to the property.

After this has been established, it is time to refer to your buyers list to find an aggressive real estate investor that is eager to purchase your interest in the contract. When you find an interested buyer you can make an agreement between the two of you, as trustee and buyer where you give one hundred percent assignment to your buyer. If there is an HOA, it needs to be made aware of the assignment to the buyer.

Your buyer can then wire the money and the deal closes with you as the trustee and since your buyer owns the trust, he/she is protected. When this transaction is completed, you can proceed to deed the property from the trust to your buyer. This in turn terminates the trust agreement and you are free and clear. The deal is complete and you can advance to the next deal that is just waiting for you to be found.