Buying from a wholesaler without lawyer

[Nishi Lagoo]

Hello Everyone!

I need URGENT advice with buying  a property.  

I found a great deal with a flooded property near Houston, TX through a wholesaler. I have never done business with this wholesaler but the information on the property and numbers look good.

Purchase Price: 95K

Rehab: 20-30K

ARV: 185K

Rent: 1800-1900

When I did the calculation on BRRRR, I used worst case scenario:

Rehab:30K

ARV: 172K

Rent 1600. 

Which gives me $233 cashflow with all reserves (insurance, HOA, vacancy, capex etc deducted) and Cash on Cash 17%.

My question is even though this seems to be a good opportunity on paper, what precautions should I take while buying from a wholesaler without a lawyer and what to expect. 

I would appreciate any feedback. 

[Michael Hayworth]

Originally posted by @Nishi Lagoo:

Originally posted by @Russ Draper:

This guy is going to buy the property no matter how many people tell him its a bad idea.  Don't touch that polished turd!  There ought to be a ridiculous number of flooded homes for sale in TX, I wouldn't pay $3000 for the privilege of buying one!  Especially without a lawyer.

Send me the $3000 if its burning a hole in your pocket!

 Number 1:  I am not a guy. I am a woman, yes you read it right. Thanks for assuming.

Number 2: if I had already made up my mind I would not have posted this question. I am open to opposing opinions/suggestion with sound reasoning than someone just telling me not to do period.

There's a lot of semi-overwrought hand-wringing going on here. Let's break this down a bit:

1. Wholesaling is not illegal in Texas. There are good wholesalers and bad ones. I buy from good ones all the time. Unfortunately, there are far more bad ones than good ones.

2. I have no idea what role a lawyer would serve in this process. You're getting advice from a bunch of people in the northeast, where it's common to use attorneys to close transactions. We don't do that in Texas. You don't need a lawyer, you just need to understand how to read a contract. Most wholesalers use the standard TREC contract, which you need to get very familiar with if you're going to be a real estate investor, and then an assignment form. Read the terms in the assignment form and understand them. Usually, you're paying a nonrefundable deposit, and you're paying all closing costs - you're typically assuming even seller-side closing costs, except for prorated taxes.

3. The folks commenting that there are going to be plenty of flooded houses for sale in Houston are absolutely right. And it's going to cost more than you think to reno it because supply of materials and labor is low and demand is high. And it may take a while to sell because the market will be completely messed up for a while. So don't get deal fever to get your first deal. In DFW right now, I have to make a decision in minutes on properties my favorite wholesalers send me, because otherwise, they're gone. But in Houston, you will have plenty of flooded houses available.

4. But even if you do move forward with it, the main risk is that you lose your $3000. Now that's not nothing - I wouldn't light my cigars with it or anything - but if losing $3K would kill your ability to become an investor, you don't have enough cash reserves to invest anyway.

Good luck. Feel free to DM me if you have questions about the TREC contract, assignment form, etc.