Hey everyone, I am a newbie taking my first step into flipping. I found a property here on bigger pockets from a wholesaler. After researching the property address and calculating the numbers, I placed an offer sight unseen. The wholesaler sent me very good pictures of the property, but said it was currently occupied by a tenant, therefore we had no access to the property at this time.
The wholesaler sent me an assignment contract for the agreed-upon amount, and asked for a $3000 deposit. I signed the contract and have already wired him the deposit.
My question is, when I went to sign the assignment contract, I asked if I could see a copy of his purchase contract with the seller. Being that this is my first deal, there are things that I have yet to learn. He told me that typically￼￼￼￼ he has no obligation to show me the purchase contract since this is an as-is assignment. The problem is that now the tenants are going to need to be evicted, as they are refusing to leave the property. We are set to close proximately three weeks from now, and the seller is not making himself responsible for the evection.￼ therefore I would have to cover the eviction myself. The wholesaler said he would split the eviction cost with me.
I asked the wholesale again if I could see a copy of the contract and he said he doesn’t have to show it to me, that this is just a simple as-is assignment. Is that accurate?
Please and thank you so much for your help!
@Joseph Grullon sorry to say, but when you said new you really meant it. First of all you never buy a property sight unseen. You would have known about the tenant if you were able to see the property. Tenants are a red flag right now due to the NO eviction policies in the US. He really does not need to show you his contract, which will reveal how much money he is making on the deal. This is why some wholesalers do a double closing so they can avoid this question.
OK what can you do now? It sounds like the wholesaler is willing to participate in the eviction costs with you. Make sure you get that money from him in hand. Look at your assignment contract and see if there are some contingencies that you can hang your hat on to get out of this deal, if that's what you want.
How did you put the earnest money down? Was it an escrow that has the money, or did you pay the wholesaler directly? If its in escrow, then both parties will need to sign before that money is released. You can negotiate with the wholesaler to get some or all of it back. Next time look before you leap.
You might want to reach out to @Violet Rose who works in Florida.
@Joe Homs Joe, Thank you so much for your reply.!After several years of paralysis analysis, I can say I got a little ahead of myself and maybe tried to be too aggressive. Unfortunately I thought that with the numbers as they were it was a risk worth taking. As far as the assignment contract, within there the wholesaler did put his fee which is $40,000 on a $215k property.
The deposit was made through his title company. But there is nothing in the contract that says I would be able to get my deposit back. In fact he put nonrefundable, which I questioned him about at the time, and he said don’t worry about it if we need to cancel for it a reason that we can agree on, we will. So let’s see what happens, he wants to speak with the evection attorney and me on Monday to see if how the process would go. But I’m really starting to get a bad taste about this whole thing. Since I feel like the wholesaler could have been a bit more transparent.
I tend to be a cynic, so take this with a grain of salt if you will. My guess is that non-refundable will be non-refundable.
Who's the seller that's not responsible for the eviction? The former owner (current?) or the wholesaler?
Do you have a contract with the wholesaler?
Have you talked to the tenants?
If you are purchasing this contract - the wholesaler is assigning it to you - then it is your contract, yes? You are literally buying the contract from him. Why would you not be allowed to see YOUR contract? Sure, it will tell you how much he is making, but you already know that apparently.
This is the worst deal I have ever heard. Just consider your 3k a donation and walk away and never look back and never buy a sight unseen deal via BP again. If a wholesaler is taking a 40k squeeze on a 215k property there is more than one issue. He isn't that lucky. The tenants aren't leaving and for all you know they have no idea the house is up for sale, assigned, or anything else. I wouldn't even be sure there is a property at this point. Saying the wholesaler could have been more transparent is like an actual full set of comedy. Just donate the money and do better next time. This one ain't it.
I appreciate everyone’s responses and helpful insights. I feel terrible that after so long waiting to get started I seem to have made a terrible judgement call. I put too much trust in the wholesaler apparently. I will reach out to him to see if it’s possible to get the refund back, otherwise I may have to make the decision to walk away. Thanks again for all your help and I will take all of your recommendations.
@Joseph Grullon That wholesaler should be in prison for rape. If that's how he does business, I would never deal with him. You should walk away, then call a realtor. 99% of wholesalers are garbage, especially the ones in my area. Call a local realtor, and don't get scammed again. That $3000 loss is tough, but I guarantee you won't miss it in a couple years as long as you learn everything you can from that mistake. I would send that wholesaler a box full of dog poop!
If you do decide to consider going ahead, go and look at the house. Even if it is occupied you will see if there is water and electricity. Occupied does not mean that a normal person will live in the house. Some people will live in something that is not habitable. INSIST you need a walk through. You can do that with tenants. They can stand outside. You can wear a mask and give them a bottle of lysol when you leave.
Then consider what needs to be fixed, likely its a lot more than you think as otherwise he would not be making $40k. Photos do not show the rotten floor, termite damaged door frames, leaks that destroyed the cabinets and floors, electrical outlets that are not wired.
Then you need to have an escrow company that is NOT his represent you or an attorney, depending on the state. The eviction money, or rather his half needs to be put in your escrow company's hands. And you should be compensated for the time you will be paying insurance and taxes and not have control of the property. You are paying expenses and not making money or using the time to fix the property. You should get something for that--at LEAST the taxes and insurance costs, maybe trash, water and sewer any utilities if they attach to the property. BTW, you also need to check that all utilities are paid and there are not fines from a HOA, city, etc.
Never trust a whole seller. They want ONE transaction not a long relationship. They will lie to you and cheat you pretty much every time!