Buying from a wholesaler without lawyer
Vancouver, BC · Member since 2017 · 24 posts · 12 votes
Buying from a wholesaler without lawyer
Most Popular Reply
Contractor · Fort Worth, TX · Member since 2015 · 379 posts · 740 votes
9yOriginally 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.
49 Replies
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
If they're asking for a non-refundable deposit I would walk
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
@John Thedford, They are asking non-refundable deposit. I also asked if I back off after inspection can I use it on another property, he said no.
Thank you for your response.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes9y
Don't buy from a wholesaler without a lawyer. It's like walking through a field of rusty nails without a tetnus shot.
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
@Richard C. Thanks for your response and I understand there is risk involved with buying without a lawyer. However, this property look in a good shape and in good neighborhood. I don't think there will be any issues based on condition of the property. Can you elaborate on what kind of risks there are when I contract with the wholesaler without the lawyer.
P.S, I am really interested in the property and I am sure I do not have enough time to find a lawyer ASAP. So, just trying to figure out what precautions to take or what are the red flags.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Remember, these are generally unlicensed people skirting laws to broker without a license. You have little or no protections like you would have buying through an agent. Unlicensed people have no insurance, no oversight, and generally no education.
- Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes9y
@Nishi Lagoo are you new to buying properties, or have you purchased a lot of them? Have you had access to the house to review and get accurate rehab estimates? Are you worried about resale on flooded homes in the area?
You noted the deposit is non-refundable, correct? I assume you are having a title search done on your own? If they find tons of issues, and you walk, you lose your money? How much is the deposit? These are some of the red flags I would have in a situation like that.
- Attorney / Multifamily Investor · Houston, TX · Member since 2009 · 173 posts · 136 votes9y
I've seen this quite a bit lately, wholesalers asking for non-refundable deposits. I get why they're doing it, but I would never put up hard money with no contingencies unless it was still a great deal even if it had foundation and mold issues, etc.
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
@Brian Pulaski, This will be my first investment property. I have seen pictures of the house but since this property is owner occupied I haven't had a chance to look at it yet. I have few contacts in residential GC, and I have shown them the pictures to which they estimated same 20-30K range.
I am not worried about the flooded property, because it only flooded for the first time during Harvey (6-8"). and the Owner is still living there. Which makes me think it is still safe and habitable. I am more worried about buying without any legal protection. To answer the deposit question, yes I will loose the deposit money $3000 if I back out.
- Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes9y
@Nishi Lagoo if you are comfortable with the condition and the rehab estimate then that's one end covered. With that said, a house that had 6-8" of water in it will need a lot of things fixed (water touched the flooring, walls, baseboards, cabinets, possibly HVAC items, insulation, etc.). These might not be apparent in photos, and someone "living" in the home means very little. I have seen people living in places that animals wouldn't live in.
The $3000 that you would lose is something I would be concerned with. Do you need to qualify for a mortgage or hard money? If you don't qualify do you lose the $3000?
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes9y
Originally posted by @Nishi Lagoo:
@Richard C. Thanks for your response and I understand there is risk involved with buying without a lawyer. However, this property look in a good shape and in good neighborhood. I don't think there will be any issues based on condition of the property. Can you elaborate on what kind of risks there are when I contract with the wholesaler without the lawyer.
P.S, I am really interested in the property and I am sure I do not have enough time to find a lawyer ASAP. So, just trying to figure out what precautions to take or what are the red flags.
You are buying from the least trustworthy type of seller, with no experience, no buyer's agent, no recourse to the errors and omissions insurance of an actual licensed professional...
I very, very strongly advise that you not buy anything from a wholesaler without a lawyer, or at least a buyer's agent. Lawyers are not hard to get; you could have gotten one in the time you were waiting for responses on this thread.
Buying from a wholesaler is probably a bad idea for someone in your circumstances even with a lawyer. Without one, you might as well take that $3000 and set it on fire.
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
@Brian Pulaski, The property was already gutted and the insulation was removed. Some of the cabinetry was salvaged and the upper cabinetry are in good condition. This property was remodeled recently and the pictures show it. So, other than flooring, cabinetry and drywall and some touch up work there is nothing that needs fixing. HVAC is also working, but I will know it for sure only when I see the property.
I have been in talks with 2 hard money lenders and I am qualified for the property in this range.
I will loose that $3000 only if I back out. That being said, unless there is huge structure /Mechanical issue or huge rehab required (more that 60K), there won't be reason for me to back out.
I really appreciate your help.
- Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes9y
@Nishi Lagoo I recommend getting an attorney you trust in your arsenal if you plan to REI. A good attorney is invaluable in this business.
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
Originally posted by @Drew Shirley:
I've seen this quite a bit lately, wholesalers asking for non-refundable deposits. I get why they're doing it, but I would never put up hard money with no contingencies unless it was still a great deal even if it had foundation and mold issues, etc.
Thanks for your response. Can you educate me a little on if I decide to go with the buying, what should I look into seller's contract that might work against me. Can I use my realtor as Buyer's agent?
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
@Richard C. and @Brian Pulaski,
Thanks for the insights. I guess I need to do some homework before jumping into buying from wholesalers.
- Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes9y
@Nishi Lagoo as a disclosure, I have never purchased from a wholesaler to date, however I have a few sending me deals that I am interested in. I however will not place an offer on a house that I cannot view inside and outside.
- Investor · Charleston, SC · Member since 2014 · 92 posts · 43 votes9yWhy can you not use a lawyer to close the deal? Is there something saying no lawyer? A good title agency doing good title search’s and title insurance can pretty much do the same thing as a lawyer. But what happens when the title search comes back with a major problem, you loose the $3000. What happens if there is a deed restriction on the house and you can not resell it for 10 yrs, can you afford to pay hard money for 10 yrs? It could go down without a hitch, but there are a lot of what ifs on that deal. If water intruded everything on the ground floor that means HVAC, Water heater, all appliances, insulation, drywall, flooring, base boards. $30k sounds a bit light, but I am in a overpriced market so I could be wrong.
- Investor · Boston, MA · Member since 2015 · 398 posts · 147 votes9y
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!
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
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.
- Contractor · Fort Worth, TX · Member since 2015 · 379 posts · 740 votes9y
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.
- Greenville SC · Member since 2017 · 33 posts · 10 votes9ySo many great tips in this thread. Anyone know how I can mark it as a favorite or save it, for future use?
My suggestion would be that if you are asking these questions, you probably don't know your market quite well enough. These wouldn't be questions you would come here to ask if you knew your market and the numbers professionals in that space use. I know this sounds direct, but I am suggesting to know more about the money you will be putting at risk.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Anthony Conway Texas is not an attorney state.. title company gives you a preliminary title report you read it and any of the issues you bring up are revealed there.. UNLESS your so clueless to real estate you don't understand a title report then you go in and have the escrow officer explain it line by line.. we simply don't use attorneys the same way you do in Charelston. I know when I close in Charleston is all A$$ backwards the way we do stuff out west.. and of course its the law to use an attorney for closings.
this person just needs to hire a very good home inspector thats the issue.. Title is moot and not a big deal.. and in Texas its common to get fresh survey each time you buy and sell .. so she will want to do that.. Plus its common to have contingencies and not go hard on deposits.. these wholesaling JERKS who ask for this just try to put pressure on buyers when no pressure is needed.. Everyone should have a 2 week due diligence period.. if the wholesaler is not giving the customary 100.00 option 2 week period for this buyer .. then he or she is being a Jerk.. is my thought process.
- Charleston, SC · Member since 2013 · 380 posts · 157 votes9y
Agree with @Jay Hinrichs, you need a good home inspector or Contractor you trust (Contractor would be better imo) to look the place over BEFORE you are committed to losing any money. I will sign contracts without much thought if I know I have an inspection period in which I can back out without losing my earnest money. I would never sign a contract if I don't have the risk-free right to inspect unless the price is well less than lot value.
- Investor · Corpus Christi, TX · Member since 2012 · 2k+ posts · 1k+ votes9y
1. If this is your first purchase, how did you arrive at your rehab numbers? If you got them from the wholesaler, you can rest assured the numbers are fudged, as is the ARV.
2. If you're paying the non-refundable deposit to the wholesaler without seeing the terms of the contract, the condition of title or the condition of the house, you may want to re-think your position.
3. As others have said, this is an unregulated industry and scammers are plenty. As long as you can afford to lose the $3,000, then it's no big deal, unless of course you're accepting a contract that doesn't give you a way to terminate in which case you can still be held liable if you don't consummate the transaction.
4. Being new, you won't likely understand the contract, assignment agreement, title issues, etc. so you better bone up real quick on all these matters as you're obligating yourself contractually and contracts have consequences.
- Investor · Houston, TX · Member since 2013 · 76 posts · 35 votes9y
@Nishi Lagoo You mentioned you have seen pictures but have not walked the house and that this is your first purchase. $30k for a flooded house rehab? I seriously doubt it. Salvaged cabinets in 6 inches of water? I would think not. Did the wholesaler provide you the numbers? Or did you arrive at those numbers? If you used the wholesale numbers, I would consider them useless. Do your own due diligence on deal, run your own comps, get a general contractor or a friend in the business who can help you with the rehab costs. Vet the wholesaler. Can he or she provide references?
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