Many new investors expect to wholesale vacant homes when they enter the business, but quickly discover that a large percentage of properties today are occupied, including foreclosures and REOs. So how is this a game changer, and what tips can help wholesale houses with tenants better navigate the process more profitably?
While many, especially newer real estate investors, may find selling vacant homes wholesale simpler, there are many advantages to selling tenant-occupied properties in this market.
First-time homebuyers still make up a small percentage of the market in most areas and certainly don’t provide the consistent volume and speed that wholesale homes offer to investors eager for rental units.
Properties that already have tenants take the guesswork out of end investors and give them the confidence and advantage that comes with an asset that is already generating positive cash flow and returns. This can help generate higher profit margins and move houses faster.
Of course, wholesaling properties that are occupied can also come with some additional due diligence and challenges. First of all, today this means finding 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 listed as REO owned by a bank for years, previous owners can still be found living there. This is a big problem situation for investors. While it may not seem like much of a concern for those who wholesale or trade real estate contracts, it can mean getting stuck with a deal no one else wants to touch.
Make sure the property is clear of previous owners and squatters before closing or prepare to keep them indefinitely.
Even when actual tenants are in place, it is essential to check rents, rental status and deposits accurately. Never just trust the seller’s word, not even their agent or a occupant. Official letters of legal impediment must be obtained from all verified units and figures.
Please stay on top of this at closing to ensure all funds paid are prorated and the appropriate amounts are transferred to the new owner. As a buyer or broker, remember that the cash refund at closing due to the credit of the deposit and rent paid in advance is not a profit. Some have boasted that they walk away from the closing table with thousands in cash, but that in reality it must 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 inconvenient for tenants. Be polite, be as transparent as possible, and make sure they understand the benefits to prevent them from becoming difficult or blocking potential deals.