Hesitation buying from a wholesaler
A wholesaler posted a property on FB Marketplace. I inquired. They sent me 10 pics. I am not able to get in the house before purchasing (but I can walk around the outside) The home is 1700 sq ft whith an upstairs. I don't even know what the kitchen or bath looks like. The people currently living there have 15 days after closing to vacate. Closing will take place at our local title company. Can someone help me by telling me what happens next? What are the steps that take? Who's responsibility is it to make sure there s a clean title delivered? I assumed I would have to start an evictions process if the people dont leave. What do I need to do to make sure this is a legal purchase and I dont buy a worthless house?
First and foremost, make sure you aren't being scammed. Scammers will frequently use lines like that... "take a look from the outside", with their ultimate goal to get your escrow deposit and then you later find out that the house isn't even for sale. That happens in the rental market all the time! If the wholesaler is dealing with multiple potential buyers they may not want to do tour after tour, so they are providing the pictures to give you a good idea of what the inside looks like.
IF you do decide to proceed, be sure to factor in the meaning of why you can't see the inside - it could mean that the inside has issues that might cause you 'pause'. At this point you don't even know if the pictures being provided are of the same house. Negotiating the price of the property without all the details can be dangerous - especially if they have clauses like "escrow is non-refundable if you back out". If you put your money down and then get inside and see leaking roof, termites, etc you may say, "Well, I want it, but not for that price. The wholesaler may not be willing to refund your escrow if the contract says "you are buying it as is" - so be sure to understand the terms of your contract - especially in regards to getting your escrow deposit back. If it is a crazy great deal, you might say, "I'll buy it regardless". We have bought wholesale deals where we didn't care if it needed a new roof, or the kitchen needed to be replaced... there was $150,000 profit that could be made after repairs and we could absorb almost anything wrong with the house.
From a "scam" perspective - the biggest things would be this: If you do proceed - be sure to only provide your escrow deposit to a title company - not the Wholesaler. A legitimate title company is a fiduciary - meaning that they represent both parties equally and have a responsibility to be fair in their dealings. Secondly, make sure your contract has an inspection period. That is going to be critical to you since you are not being allowed in. In other words - you MUST be given interior access before closing so that you can make sure the property is something you want to purchase. Obviously there are appraisals, etc that also have to happen that would require interior access as well. But I would explain to them that they can't have it both ways: No interior inspection AND non-refundable escrow. I wouldn't put myself in a lose-lose position like that! So if you want it, make sure you have a path forward, and backward until you are given access to see what you are really buying.
The "15 day exit period for tenants also sounds suspicious". Don't be surprised if they can't exit in that timeframe. If this is a property you are going to hold, I would look to the tenants as an immediate source of revenue for you. Our theory was always this: With existing tenants (Presuming they are actually paying), you have immediate revenue on the property, AND you don't have to do any interior repairs, as they have already accepted the property in the condition it is in. You can negotiate a new lease rate with them if the property is underpriced. If you are planning to flip the property, of course, that is different. But you might consider giving them a little more time to find a new place, just as a courtesy. We have also worked on the outside of a property while we were waiting for the tenant's time to be 'up'. Then switched to renovating the inside.
As for "what happens next" - the title company really handles everything. The wholesaler already has a contract with the seller (presumably!). They add one piece of paper to the deal (an assignment contract) that says, I am now transferring my rights to the property to this new buyer. That's it. The title company does the rest... verifies clean title, gets the title insurance, handles the closing. There is really little to worry about on the 'will it be done right' side as long as you are working with a real title company. If you are financing your side, you would of course have to jump through all those hoops with your lender. I have bought multiple properties off of Craigslist and have all gone smoothly using a legitimate title company.
All the best!
Randy
#1 All Forums Contributor
- Investor
- Virginia
@Kellie Powell
If you cannot see it or have someone trustworthy in the area to go look at it don’t do it. It’s way to large of an investment to buy something site unseen. Pictures never tell a story on a house, you have no idea if electrical or plumbing work as an example.
Please please please don’t do it.
Quote from @Randall Alan:
First and foremost, make sure you aren't being scammed. Scammers will frequently use lines like that... "take a look from the outside", with their ultimate goal to get your escrow deposit and then you later find out that the house isn't even for sale. That happens in the rental market all the time! If the wholesaler is dealing with multiple potential buyers they may not want to do tour after tour, so they are providing the pictures to give you a good idea of what the inside looks like.
IF you do decide to proceed, be sure to factor in the meaning of why you can't see the inside - it could mean that the inside has issues that might cause you 'pause'. At this point you don't even know if the pictures being provided are of the same house. Negotiating the price of the property without all the details can be dangerous - especially if they have clauses like "escrow is non-refundable if you back out". If you put your money down and then get inside and see leaking roof, termites, etc you may say, "Well, I want it, but not for that price. The wholesaler may not be willing to refund your escrow if the contract says "you are buying it as is" - so be sure to understand the terms of your contract - especially in regards to getting your escrow deposit back. If it is a crazy great deal, you might say, "I'll buy it regardless". We have bought wholesale deals where we didn't care if it needed a new roof, or the kitchen needed to be replaced... there was $150,000 profit that could be made after repairs and we could absorb almost anything wrong with the house.
From a "scam" perspective - the biggest things would be this: If you do proceed - be sure to only provide your escrow deposit to a title company - not the Wholesaler. A legitimate title company is a fiduciary - meaning that they represent both parties equally and have a responsibility to be fair in their dealings. Secondly, make sure your contract has an inspection period. That is going to be critical to you since you are not being allowed in. In other words - you MUST be given interior access before closing so that you can make sure the property is something you want to purchase. Obviously there are appraisals, etc that also have to happen that would require interior access as well. But I would explain to them that they can't have it both ways: No interior inspection AND non-refundable escrow. I wouldn't put myself in a lose-lose position like that! So if you want it, make sure you have a path forward, and backward until you are given access to see what you are really buying.
The "15 day exit period for tenants also sounds suspicious". Don't be surprised if they can't exit in that timeframe. If this is a property you are going to hold, I would look to the tenants as an immediate source of revenue for you. Our theory was always this: With existing tenants (Presuming they are actually paying), you have immediate revenue on the property, AND you don't have to do any interior repairs, as they have already accepted the property in the condition it is in. You can negotiate a new lease rate with them if the property is underpriced. If you are planning to flip the property, of course, that is different. But you might consider giving them a little more time to find a new place, just as a courtesy. We have also worked on the outside of a property while we were waiting for the tenant's time to be 'up'. Then switched to renovating the inside.
As for "what happens next" - the title company really handles everything. The wholesaler already has a contract with the seller (presumably!). They add one piece of paper to the deal (an assignment contract) that says, I am now transferring my rights to the property to this new buyer. That's it. The title company does the rest... verifies clean title, gets the title insurance, handles the closing. There is really little to worry about on the 'will it be done right' side as long as you are working with a real title company. If you are financing your side, you would of course have to jump through all those hoops with your lender. I have bought multiple properties off of Craigslist and have all gone smoothly using a legitimate title company.
All the best!
Randy
Thank you Randy! This is very insightful. I really didnt even know you could have an inspection done on a wholesale deal. This specific house would be a cash deal being purchased to flip. Upon further looking at the 10 whole pictures that I received, There is some foundation issues for sure that i can see. (home built in the 1800 according to county records) There is also a window that has been boarded up for at least 5 years, which concerns me as well. I can almost guarantee there is water damage. I pretty much assumed that the whole kitchen would need redone, but the foundation seems as though the whole thing may fall in on itself without needed expensive repairs. (Thus a 200k home for sale for 30k) I think we will pass on this particular deal. Next time I will be sure to insist on interior access! Finding our next flip is proving to be quite difficult.