Many new investors expect to wholesale vacant homes when they go into business, but quickly find that a large percentage of properties today are occupied, including foreclosures and REOs. So how does this change the game, and what tips can help wholesalers with tenants better navigate the process more profitably?
While many, especially newer real estate investors, may find it easier to wholesale vacant homes, there are many advantages to selling renter-occupied properties in this market.
First-time home buyers still make up a small percentage of the market in most areas and certainly don’t provide the consistent volume and speed that home wholesale offers to investors avid rental units.
Properties that already have tenants take the guesswork out of end investors and give them the confidence and edge that comes with an asset that is already generating positive cash flow and profitability. This can help you generate higher profit margins and move house faster.
Of course, wholesaling properties that are occupied can also bring some need for additional due diligence and some challenges. First of all today this means figuring out exactly who is occupying the property and what the deal is.
In many cases today, even when a property has been foreclosed and classified as REO owned by a bank for years, the previous owners can still be found living there. This is a very troublesome situation for investors. While it may not seem like a huge concern to those who are wholesaling or changing real estate contracts, it can mean getting stuck with a deal that no one else wants to touch.
Make sure the property is clear of previous owners and squatters before closing or prepare to stay with them indefinitely.
Even when actual tenants are in place, it is essential to check rents, rental status, and deposits accurately. Never simply take the word of the seller, not even his agent or occupant. Official impediment letters must be obtained from all units and verified figures.
Stay on top of this at closing to ensure that all funds paid are prorated and the proper amounts are transferred to the new owner. As a buyer or broker, remember that cash back at closing due to deposit credit and prepaid rent are not earnings. Some have bragged about walking away from the closing table with thousands in cash, but that actually needs to be held for refundable deposits or forwarded to new buyers.
The buying and selling process, especially when there are multiple sales in a short period of time, can be very stressful and annoying for tenants. Be friendly, be as transparent as possible, and make sure they understand the benefits to prevent them from becoming difficult or blocking potential deals.