The Paradox for Real Estate Investors and Wholesalers to Make More Money per Deal

With diminished inventory of homes for sale the forces of supply and demand have turned the U.S. housing sector in to a Sellers Market.

No longer are RE Wholesalers able to steal houses with offers 40% below market value and deduct what they want as an assignment fee. At best RE Wholesalers now offer sellers at least 70% of market value for their home and then negotiate their fees directly with the Investors to whom they assign purchase contracts.

Clearly margins for both investors and wholesalers are shrinking. And so profit levels are far lower than two years ago. Sellers are now getting more for their homes in some places although in others they still must discount their selling price by 20%. At least that is much better than what distressed home owners were getting not too long ago.

Even with the rise in the housing market and lower margins for RE Wholesalers there are still ways for them to increase their own bank roles on every home deal. Exactly how escapes most wholesalers and investors as little thought is ever given by a wholesaler to financial structuring and Economics.

It should be a No-Brainer if the actual nature of the transaction process is looked at for each of the players and the numbers are added up. For example take a Home with a Market Value of say $500,000 which the Wholesaler gets under contract for $400,000. That is a whopping 20% discount - with the Seller giving away $100,000 of their home equity. (The seller can not even claim that as a tax loss if the property was their residence).

Now examine what the wholesaler does - hands the bulk of the potential profit on to a Cash Buyer to make $10,000 to $15,000 before tax, and then hands 30% to 40% to the IRS. Most wholesalers with Business Plans make provision for tax at 40%.

The Cash Buyer who makes the Lion's share of profit gives up 40% of profits to the IRS if the property is on-sold in under a year. If they are a Buy and Hold investor gains tax rates of 15% apply by retaining the houses as a rental. While a lot of investors prefer to hang on to properties long term that is not the most profitable thing to do - even with a 40% income tax rate applying to quick profits. Therefore the Economic Analysis is done on the better financial proposition (of giving the IRS a Christmas Cake on every property deal).

Combining the forfeiture to tax of both the Wholesaler and their Cash Buyer there is 40% of profit given away - amounting to $40,000 in this $100,000 profit example. When the Home Seller's financial loss is included the three Amigos loss in total $140,000.

Can you see anything wrong with that picture?

A simple quick improvement for the home seller could be to give them the $40,000 which the two Cowboys are throwing away. As they have no good use for that money can you think of a better home for it?

How might a Home Seller react to a purchase offer of $40,000 more money? Certainly it should result in the RE Wholesaler getting more Seller Acceptances to their Offer. What do you think? After all it is just a make of the law of Supply. Offer Sellers More Money and get more results.

There are several ways the Wholesaler and Investor can work on the deal structuring to make it happen as described without there being a need for a big loss to the IRS.

For starters the Home Seller incurs no tax on receiving more money from the sale of their home (up to when the gain is less than $250,000 for singles and $500,000 for married couples).

As the deal profit is now $40,000 less then tax applies to only the realized profit.

To discover various ways of reducing. deferring and eliminating income tax on this transaction Plus on those you get involved in register to watch the video by Clicking Here - NOW!