I get this question a lot.
“Hey Nick, what if a house has a mortgage on it? How can I wholesale a home with a mortgage on it? I thought I could only work with free and clear homes.”
That assumption is completely false.
You definitely can wholesale homes with mortgages on them.
The key here is that you have to make sure that the mortgage amount is equal to, or less than the amount that you’re willing to pay…
You do your due diligence and realize that you can offer $100,000 for a home.
The seller owes $80,000.
You bring in a buyer that’s willing to pay $110,000.
He comes to closing with $110,000…the seller gets $100,000 ($80,000 goes to payoff mortgage and $20,000 goes in their pocket)…YOU GET $10,000!
Everyone wins! Do you see how simple that is?
Now, if that same person owed $125,000 on that house, obviously a deal couldn’t be made.
There is something called ‘short sales’ that technically could be administered here, but it’s a complicated process that involves lots of work and I don’t recommend it.
So, if the homeowner is ‘underwater’ (a term meaning they owe more than it’s worth), you simply move on to the next deal.
If you’re being agressive and consistent in your deal finding strategies, you’ll have no problem running into another deal right away…
Don’t get frustrated because plenty of people owe more than you can pay…BUT, tons of people have plenty of equity (value minus how much they owe).
This whole business revolves around consistency…
I wanted to make sure you understood that mortgages are totally okay…
Some people seem to think that ANY amount owed will kill a deal and that’s simply not the case.
Make sure when you meet your seller and look at the home, you discuss the amount owed on the home so you can understand their equity position.
Some people don’t want to reveal that info and that’s totally fine too. You have to respect that.
One final note that I want to address is that I’ve wholesaled deals that are underwater as well.
Wait? What? Nick, you just said that you have to move on from those…
Well, I’ve had deals where the seller was willing to come up with thousands (or even tens of thousands) to cover the amount that they are underwater…It doesn’t happen often, but if they are motivated enough to sell, they will do it…
Here’s an example.
There was a house where I could pay $80,000 total. The mortgage amount was $94,000.
The seller was moving out of town and had to get rid of this house quickly. She came to closing with a $14,000 check and the deal was done.
So, with that being said, make sure you still make an offer on deals that are underwater because you never know what will come out of it. If you don’t offer, you won’t know…
TRUST ME! Crazy deals come toegether that don’t seem likely…