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
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
Thanks for the great advice, that is exactly what I was looking. I will do some research on TREC contracts and assignment form before moving forward. I understand there is some risk with going forward with wholesale deal and this being my first investment, I am excessively cautious. Thanks for offering additional help via DM. I would definitely reach out if I have more questions.
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes9y
Originally posted by @Theodore Rivera:
@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?
Great Advice. I did my due diligence on rehab price and comps. I have few GC contacts that helped me with these numbers. And I am using all worst case scenario numbers here. I really liked the idea of vetting the wholesaler. I googled his company and found few reviews but that's about it.
Thanks for the help.
- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes9y
Originally posted by @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 ****ed 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.
The purpose of the lawyer is not the closing. It is in reviewing the contract. Most wholesalers use form contracts that they download from the internet, and load up with clauses that are entirely in their own favor.
Few wholesale "deals" survive the involvement of a lawyer. For good reason.
- Flipper/Rehabber · Mount Pleasant, SC · Member since 2013 · 547 posts · 235 votes9y
As a full-time professional wholesaler and rehab/flipper I see both sides of this. I BUY rehab projects from wholesalers and sell/assign contracts as a wholesaler. "Due diligence period ends at the time of assignment" is pretty standard practice in the wholesale world. For good reason. If a wholesaler has promised the seller a quick closing, and he/she gives every serious buyer and "tire kicker" a 2 week due diligence period with a $100 deposit, that wholesaler is doing a disservice to his/her seller. When you or I buy from a wholesaler, we need to be prepared to do our due diligence quickly and effectively and also close quickly and effectively. I recently received a property lead from a wholesaler, inspected the property, gave him a $5000 check at assignment, and $5000 more 10 days later at closing. The entire process took 2 weeks (my due diligence took 24 hours and was completed PRIOR to assignment) 2 weeks ago, I collected $12,500 at assignment from my professional-friend Ron who wants to rehab and rent a house I had under contract. Ron did a 30 minute inspection and wrote me a check on the tailgate of my truck. Closing is October 11 and I have collected my entire fee. Note - Whether I am buying or selling (assigning) a wholesale transaction, clear title prior to assignment is a must. All respect to @Jay Hinrichs (you KNOW you have my respect) I don't believe that this practice of moving quickly and efficiently make me a "Jerk" wholesaler.
- New York City, NY · Member since 2016 · 420 posts · 172 votes9yGo check out the property. Go with an inspector or GC if they say rehab is decent amount as you expect read carefully and sign the contract. Seems like a good deal! Check it out.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes9y
I would seek legal advice, just because it is your first deal and you need someone to review the contract. Once you learn standard practices in your area, you probably wouldn't need a lawyer for ever deal.
One question is, who is holding the $3000? In my area you can have the title company hold it, so it is a third party. That way if there is an issue with title work, you can walk away and get your money.
I would also be concerned if the property is listed in a flood plain. If it wasn't previously, it surely will be in the future. Flood insurance is expensive and given that it just flooded, that is sure to affect the resale value. Most people who have been through significant flooding chose to move to higher ground.
Personally, I walk away from any property that could have water issues. There is nothing worse to deal with.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes9y
Verify this wholesaler actually has the exclusive right to buy this house from the actual owner. In the living room of the house, seller and wholesucker in same room, "Is this the guy and ONLY guy that has the right to buy your house for $x until xx/xx?" yes or no?
All the ppwk and title and property inspections won't matter didly if the answer to this is no. Look up who the owner is. Is it the person the wholesaler mentions?
How do you know there aren't 3 other suckers lined up to pay this guy $3k for the same deal?
All 'non-refundable' deposits (the definition of 'deposit' is refundable so call it what it is - consideration) need to be made payable to a title co or attorney, not the wholesaler.
Since you are also asking if you 'can' bring your agent into this, just skip this and learn for a while. The agent will only cost you more money. You will be on the hook to pay them for procurring you LOL. That's what they do - bring a seller a buyer. They don't do this kind of thing in general so will bring no value to the table, but at least they will cost you a lot for the privilege.
Nothing is on fire here. Go slow and learn. Get the wholesaler and owner in the same room and verify for sure he has the only contract to purchase it.
- Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes9y
wholesaler or private party,,
Use a attorney to go over the PA before you sign,,
Closer needs to do the title work,,, if it doesn't have clear title you might not have what you think..
I'd use a attorney before a agent.. you think it's going to cost you more and it not..
Ask attorney for estimated cost so you have idea.. my last closing cost me 1300.00 ...I was seller..
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@?russschnieder. I only say 100 and 2 weeks because it's texas. That's customary in that market. I agree jerk was a little strong. Lol.
- Real Estate Agent/Property Management · Houston, TX · Member since 2014 · 1k+ posts · 827 votes9y
@Nishi Lagoo Setting the other issues aside, and without knowing anything about the property, I'm pretty confident that there's no way on God's green Earth that you're going to get $1800-$1900 in rent for that.
A house with a market value of $185,000 is a lower average nothing particularly special about it house in Houston. And you're probably looking at rents in the $1200-$1400 range depending on the neighborhood. My red line for rentals is $130,000. I really don't bother looking at anything higher than that because the rents will not justify the price. - 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Russ Scheider Russ to be fair your anything but a newbie looking to buy the first one.. I have dealt with Texas wholesalers rough bunch those guys.. you need to really know your stuff lest you get parted from your money.
for someone new to this.. getting pushed into acting so quickly could be a bummer.. and lord knows there will be no shortage of deals in Houston.. they will be right on MLS every day of the week.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Bradley Snyder:
So many great tips in this thread. Anyone know how I can mark it as a favorite or save it, for future use?
Start a folder in your email system. Copy and paste the URL and email it to yourself with a title so you know what the thread is.
There needs to be a contingency on the contract that lets you back out if there is a title issue. That is a must ! How are you going to lose 3k for a home that doesn't come back with a clean title?
So if I was you, I would want the ability to back out without loosing the deposit. Forget about the inspections and all that if you are getting a good deal. The main priority is to get a clean and clear title. So sign the contract with the contingency, and then take it to the title company and they will handle the rest.- Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes9y
LOL. A wholesaler tells you not to worry about inspections...
- 9yMike ReynoldsPro Memberconstruction · Nacogdoches, TX · Member since 2011 · 2k+ posts · 1k+ votes
Originally posted by @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.
I have no comments for or against wholesalers. I just want to impress upon you (and other flippers in the area) that you need to be prepared for delays in the rehab for about the next six months. Take that into consideration on your pricing. I was told by my suppliers that it could take weeks to get Sheetrock and beyond (SR, insulation, tile, cabinets) for the smaller guys. Not something you want to have happen with hard money loans. The ones getting the goods will be the ones like us that buy 1000-10000 sheets at a time and even then it will be touch and go for us. Order everything early and have them lock it up for you. Even then some bozo may let your stuff go to someone else but at least you tried.
Best of luck and hope you hit a home run.
Originally posted by @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.
good points @Michael Hayworth, are you still doing brrrr in fort worth area ? do you have any recommedations for a good wholesalers, if so please dm me. it's hard to find .
- 7yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Ron Singh talk about a blast from the past! 2 years ago...but this is kind of what Bigger Pockets is designed for. You can keep researching topics continually. For wholesalers in the Fort Worth area it's best if you are local. You can try to either post in the Texas forum (usually some good locals monitor that forum) or use some of the ones I've included below. I do have more than this but I can't include everyone here so feel free to PM me and I'll send you everyone that I have. Good luck!
Thanks @Andrew Postell by chance do you have any links for SF Bay area as well ? or know how to get some of them ?
is there any groups in BP specific to area ?
Originally posted by @Nishi Lagoo:
Originally posted by @Theodore Rivera:
@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?
Great Advice. I did my due diligence on rehab price and comps. I have few GC contacts that helped me with these numbers. And I am using all worst case scenario numbers here. I really liked the idea of vetting the wholesaler. I googled his company and found few reviews but that's about it.
Thanks for the help.
@nishi lagoo: if you did buy it , how was your experience In last couple years ?any major issues ?
- Vancouver, BC · Member since 2017 · 24 posts · 12 votes7y
It is interesting to see activity on a 2 year old post this morning. I have been inactive on bigger pockets and RE investing for past year due to my full time work load. However,I would be glad to give an update on the question and the purchase.
@Ron Singh@Ron Singh I did buy the property without a lawyer from the wholesaler. I met with the wholesaler and personally saw the property to make sure I wasn't making a decision blindly. The process went smooth, I had some help and guidance from my lender since this was my first purchase. I still own the property after 1.5 years and is rented out since Feb 2018. We finalized the deal in End of Oct 2017 but didn't get the possession until mid November. Rehab took almost 45 days and one month to list and rent the property and refinancing in March 2018.
Below are the stats on the property:
Purchase Price: 98K
Rehab: 20 K
ARV: 180K
Rent: $1650
The biggest issue I faced was with the appliances (All upgraded by previous owner) in the house which were running at the time of renting the house started breaking down one by one. I had to replace Microwave, Oven and refrigerator (all in built in cabinetry) within a year. Other major expenses to the property were the fence (shared with the neighbor who was unresponsive and unwilling to share the cost to replace it) and trimming large trees in the front yard and back yard.
Hope this information helps and wish you luck with your investing.
- Flipper/Rehabber · New York, NY · Member since 2019 · 3 posts · 1 vote7y
@Nishi Lagoo I read this entire thread and was quite nervous for you! Glad to know it all worked out. Have you acquired any more properties since?
Originally posted by @Nishi Lagoo:
It is interesting to see activity on a 2 year old post this morning. I have been inactive on bigger pockets and RE investing for past year due to my full time work load. However,I would be glad to give an update on the question and the purchase.
@Ron Singh@Ron Singh I did buy the property without a lawyer from the wholesaler. I met with the wholesaler and personally saw the property to make sure I wasn't making a decision blindly. The process went smooth, I had some help and guidance from my lender since this was my first purchase. I still own the property after 1.5 years and is rented out since Feb 2018. We finalized the deal in End of Oct 2017 but didn't get the possession until mid November. Rehab took almost 45 days and one month to list and rent the property and refinancing in March 2018.
Below are the stats on the property:
Purchase Price: 98K
Rehab: 20 K
ARV: 180K
Rent: $1650
The biggest issue I faced was with the appliances (All upgraded by previous owner) in the house which were running at the time of renting the house started breaking down one by one. I had to replace Microwave, Oven and refrigerator (all in built in cabinetry) within a year. Other major expenses to the property were the fence (shared with the neighbor who was unresponsive and unwilling to share the cost to replace it) and trimming large trees in the front yard and back yard.
Hope this information helps and wish you luck with your investing.
@Nishi LagooGlad it worked out perfectly for you and sounds like a really great deal. also I am happy that you were not scared of the responses you got here, and you were firm and confident on it.
so far I am not able to find a good wholesalers, would you be able to share ? I know there are many,but if you can recommend would be great. (feel free to PM if you prefer )
- 7yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Ron Singh if you are looking for things in your area try the California forum here on Bigger Pockets. You can also try meetup.com for some local REI groups to you. And Bigger Pockets posts some of those as well.
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