Buy Retail – Rehab Deal
Advantages Of Retailing
There are some very important advantages to working within the Retail Deal Section.
· The biggest advantage to retailing houses is the paydays, which can be very large.
· Sometimes you will be giving the buyer a seller held second mortgage as part of getting the buyer qualified more easily.
· After doing several retail deals and holding back several seller held mortgages, the monthly cash flow from these second mortgages can begin to add up.
· You can also use the second mortgages as down payments on other deals or sell them at a discount for cash.
Another nice thing about retailing is that you get to deal with prettier houses in nicer ar~as than if you were wholesaling and you get pride in the accomplishment that you made an old house look new again.
Disadvantages Of Retailing
Of course, Retailing houses does have some disadvantages. We said a minute ago that Retailing is the hardest way to invest and there are several reasons why.
First, you have to find a deal that you can buy at a steep discount which can be harder to do sometimes in nicer areas.
After finding a deal, you usually have to come up with the funds to purchase the property along with the funds to hire contractors.
You also have to deal with these contractors, which is probably the worst part of investing in real estate. Just ask any experienced investor what they think about dealing with repairmen. Repairing houses can be a hassle and it can be an even bigger hassle if you don’t know what you are doing.
The whole time the property is being repaired and is on the market, you have to pay holding costs such as mortgage payments, taxes & insurance.
Once you do find a buyer, you have to get them qualified for financing. As part of getting them qualified, you may have to help them with their mortgage application as well as help them fix their credit.
Something you have to worry about with the buyer’s new financing is “seasoning” issues. Seasoning is the amount of time you as the investor have owned the house. Banks don’t like to do loans where you as the investor are reselling the house at a higher price than you bought it for. The fact that it needed work doesn’t matter.
To get around seasoning problems, many investors have their buyers get FHA or Fannie Mae financing, because these loan programs do not have any seasoning requirements. However, these types of financing loans can result in you as the seller paying some hefty closing costs on behalf of the buyer.
All in all, retailing houses can be very time consuming and requires some skill.
