Many new investors expect to be wholesaling vacant houses when they get into the business, yet quickly find a great percentage of properties today are occupied, even foreclosures and REOs. So how does this change the game and what tips can help those wholesaling houses with tenants better navigate the process more profitably?
While many, especially newer real estate investors may find wholesaling vacant houses simpler, there are many advantages to flipping tenant 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 wholesaling houses to investors hungry for rental units does.
Properties which already have tenants in place eliminate the guess work for end investors and give them the confidence and advantage that comes with an asset which is already delivering positive cash flow and returns. This can help generate higher profit margins and move homes faster.
Of course wholesaling properties that are occupied can also come with some need for additional due diligence and a few challenges. First and foremost 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 on and classified as a bank owned REO for years previous owners can still be found living there. This is a big problem situation for investors. While it may not appear to be much of a concern for those wholesaling or flipping real estate contracts it can mean getting stuck with a deal no one else wants to touch.
Make sure the property is free of previous owners and squatters before closing or be prepared to be stuck with them indefinitely.
Even when actual tenants are in place it is essential to verify rents, rent status and deposits accurately. Never just take the seller’s word for it, or even their agent or an occupant. Official estoppel letters should be obtained from all units and figures verified.
Keep on top of this at closing to ensure all funds paid are prorated and appropriate amounts are transferred to the new owner. As the buyer or middle man remember that cash back at closing due to deposit credit and rent paid in advance is not profit. Some have boasted walking away from the closing table with thousands in cash, but which 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 renters. Be friendly, be as transparent as possible and ensure that they understand the benefits to prevent them from becoming difficult or blocking potential deals.