So last month our company put together a deal.....no not just any deal, it was a virtual wholesale deal involving a seller, two buyers and our company. The deal was in Milwaukee WI and our company, as you know, is based out of New York. Soooo here it goes...
Many people say virtual wholesaling cannot be done. I say to them show me a hot market, motivated seller/buyer & a hard working wholesaler with boots on the ground and I'll show you a deal that get's to the closing table!
So we call up the seller( which is our preferred means of initial contact) who appeared interested in selling at first, but later stated he would like to wait till spring to sell. After several follow up calls, text messages and visual inspection of our company's proof of funds, he decided to do the deal. I mailed the seller the contract (overnight) and after receipt the seller states "I have to let my attorney review it......." Oh no...Not the o'l attorney review trick!! LOL. Turns out that he really ran the contract that we wrote by his attorney and the attorney approved!!!! We were so shocked as that had never happened in our entire career wholesaling deals. The property was an 8 bedroom, 2 bathroom large Victorian duplex, corner lot with parking available for 3 cars. The property was in good condition considering it hadn't been updated since the early 2000's. However everything was functional and working properly.
The seller signed and mailed the contract back to our corporate office. Once we received the contract, now the work begins. We had already run the numbers and determined that the cap rate was around 18% on this deal and after a delayed refi (Immediate cash out) our COCR will be in the ball park of 75%. For those who do not understand those terms see the term list below. Once we saw that the numbers worked and we were rocking and rolling. I began marketing the deal at 9K above contract price as we felt the deal still made sense at that price, however when the market speaks, you listen. Turns out we had to lower the assignment fee by 5K :( We were fine doing this as we knew the deal would sell and without fail we found a buyer.
The buyer who was interested in the property was only looking to partner on it. If it wasn't 50/50 he was not interested. Which was fine as we managed to carve out an amazing partnership deal which will give our company 30% control of the asset with no money into the deal in 6 months. (Contact us for information on how to put a deal like this together). So we were prepared to partner on the deal with our buyer and that's when the light bulb went off and we remembered that there was a buyer who is currently investing in another market who expressed interest in one of our previous deals. So we called the 2nd buyer up, he said sure I'll do it, and the assignment was signed the next day. I held a phone conference with both buyers to introduce them and to let them know that we'll be working with them every step of the way.
So now with contracts signed between us and seller and us and new buyers. Now we are all set for closing. BUT, and there is always a BUT. The title Co. emailed us stating that a judgement was found during the title search in the sellers name and we could not close.....:( Turns out that the seller had a very common name and simply needed to sign an affidavit stating that he was not the person the judgement was filed against. Hours later seller called us and said he signed the paperwork. Now were all set!
So the property closed a week later due to a snow storm here on the East cost which led to banks shutting down which delayed the wire transfer from one of the buyers. Because of the delay we began questioning whether the funds were actually transferred and yes, they were.
After the seller picked up his check and left the title Co. We called him and congratulated him on the sale of his property. At this time we informed him that we too sold the property after holding it in our possession for roughly 15 minutes LOL!!! He got a big laugh out of that and said he had no idea. We informed him that we didn't want to alarm him regarding our sale and that we knew the process and could guarantee his property sold as planned.
A week later the seller called us up and said, "I have another property for you to sell" We all just laughed....Contract went out today and we should have it back in a few days.
Terms explained: Cap Rate aka Capitalization Rate - Is the rate of return on your money when dividing the NOI by the purchase price.
NOI aka Net Operating Income - Income received on a rental property after deducting all of the monthly operating expenses from the gross rent. (This does not include monthly mortgage payment(debt service)
COCR aka cash on cash return - Is the rate of return on your hard cash put into a deal. For example if you purchase a property for 50K cash(Which include all other cash costs) and the NOI monthly is $400 of $1300 in gross rents, then your COCR would be 9.6%. - NOI of $400 X 12 months = $4,800 / $50,000 = 9.6%