Walkaway from 1st wholesale deal-buyer backed out at last minute.

8 Replies

Hello BP Community,

I have my first wholesale property under contract, and had a cash buyer lined up until yesterday. He backed out at the last minute because of the septic tank. The septic system was inspected and is in perfect working condition, the only thing is is that it is a 750 gallon system that has been grandfathered into the new requirements of 1000 gallon systems for 3 bed, 2 baths. The tanks could be swapped out for roughly 6k all said and done, but that is without county permits, which i have quotes from multiple companies saying they have no problem doing it with out permits. However, if you did want permits, it opens up a can of worms because of new county requirements and setbacks. Would probably cost 20k. The cash buyer I had lined up was afraid of doing it without permits (rightfully-so), but i really don't want to walk away from this deal because the current system works great, is grandfathered in and perfectly legal as is and there is plenty of money to be made. Here are some details that might help guide advice.

Pre-manufactured home built in 1996.

Lot size:6000sqft

Had full inspections done and passed with flying colors, even structural.

Has detached steel 2-car garage structure.

ARV:$75-80k

SQFT: 1080

Beds:3

Baths:2

Repairs needed: paint on interior walls and wood cabinet paint. Septic if desired as described above.

Potential rent: $800/mo

Have under contract for 52k.

As you can see it could be a very simple flip or great buy and hold, so I am reluctant to just walk away, but the clock is ticking.

Thank you for your time and advice,

Billy Bell

Wholesale, Mesa, Arizona

HI Billy,  My name is Danny Hammond and there is much in real estate deals I haven't done.  The answer should be very simple.  Get the permits and do the $6,000 job and have your lender roll into the loan.  Even at 5% that extra monthly payment for the new septic tank is only $32.21.  Plus the Buyer has a brand new system that will last years more than the old one.  Danny Hammond

Originally posted by @Danny Hammond :

HI Billy,  My name is Danny Hammond and there is much in real estate deals I haven't done.  The answer should be very simple.  Get the permits and do the $6,000 job and have your lender roll into the loan.  Even at 5% that extra monthly payment for the new septic tank is only $32.21.  Plus the Buyer has a brand new system that will last years more than the old one.  Danny Hammond

Hey Danny, 

I was hoping it was that simple also. If we were to get permits, the county would force the 20k job to be done. I already got the seller to lower the price by 5k to allow for the illegitimate tank swsp, but my buyer refused to have it done without permits, which is understandable. 

Thank you,

Billy

@Billy Bell

Maybe this isn't part of your strategy.  Can you finance it and turn it into a rental for your self or you and a partner?  

Congrats on locking up a deal.  You may try and find a more experienced buyer that has purchased these kind of "problems" and isn't scared of these unknowns.

Rich

Hmm...tough one Billy!

I agree with Rich, it sounds more like a good deal for Buy & Hold...but not as a flip.

Your buyer is wise to pass on that one.

Originally posted by @Bevla Reeves :

Hmm...tough one Billy!

I agree with Rich, it sounds more like a good deal for Buy & Hold...but not as a flip.

Your buyer is wise to pass on that one.

 Hi Bevla!

I agree with you and @Rich Nickel, it is a much better buy and hold, and that is what my buyers plans were for it also, he just got spooked about the septic. I would love to keep it as a rental for myself, i just dont have the personal funds or financing set up to do so, especially in such short notice.

Thank you guys for your ideas!

Billy

Originally posted by @Rich Nickel :

@Billy Bell

Maybe this isn't part of your strategy.  Can you finance it and turn it into a rental for your self or you and a partner?  

Congrats on locking up a deal.  You may try and find a more experienced buyer that has purchased these kind of "problems" and isn't scared of these unknowns.

Rich

Hey Rich, please see my response to you and Bevla above. 

Thank you for your advice!

Billy

Continue to grow your Buyer's list, a more experienced buyer would likely jump on that one!

Send me a PM if you want me to run it by some of my buyers!

Good luck and congrats on your 1st contract as a wholesaler...AWESOME!!!

Yeah, I wouldn't be too scared of that, but then there's not too much about a house I get scared of.  Just shop it with that as part of the sale.  What's the difference other than you have to clean it out once every 3 whatever instead of once every 4 whatever?

Also, I'd never do that job without permits.  That's pretty crazy, and I do plenty without permits.  

Your answer is just to shop it to other buyers at your new discount and disclose the septic IMO.  There are guys out there that'll buy it as is I think.