Please help me figure out if this deal is worth moving forward on

24 Replies

I'm trying to BRRR. This is my first time investing in real estate which is not my own home. We have two days to purchase a contract from the wholesaler so I have to make a decision.

The deal:

  • The negotiated price: S67.5k
  • Rehab: ~11000
  • ARV: S110K
  • Rent: conservatively speaking: $850

The complication:

  • I don’t have page 1 of the 15 page lease. I’ve been told it’s irretrievable.
  • The owner is living in the garage with his girlfriend. I don’t see anything mentioned about this being okay in the lease. This house isn't zoned for multi-family.
  • The tenants I was told is being difficult in this transition period. She has two small kids.
  • I was told she’s not paying rent. I have not seen a paper trail to prove this so I’ll likely have to start one when we take the property over.

Questions:

  • Does this deal seem too complicated for the numbers to be worth it?
  • I’m doing this remotely and trying to be hands off. I’m thinking to hire a lawyer to handle the eviction.
  • Can I do a rehab when someone is still living in the home? I was thinking to come in, let them know I’ll be reducing the rent for one month to compensate them for the headache of rehab. If so does this need to be written into the contract?

for a first deal this one would be tough.. not only that I would very much question that 11k in rehab is going to raise the value by almost 50% .. hold over tenants can do thousands of damage and cost you months evicting.

I was with you until the out of area, hands-off part.

We can add tremendous value ridding properties of undesirable people and conditions,  but it is far from hands-off.  

There's also wholesaler risk with pushy deadlines and lack of paperwork.  Whose to say this contract hasn't been sold to 3 others? 

Just buy off the MLS from a regular homeowner that's been there forever with no updates. Easiest way to find is probably long DOM. Good luck.

Sounds like a lot of unknowns and they are passing you their problem property. Me personally I would pass. I would also question having such a huge ARV after repairs among other things. It could be costly to get the tenant out not to mention there could be many more repairs you don't know about. If she says no then you are stuck going through legal proceedings which could set you back a month or more. Strong caution is advised.


Thanks for the feedback.

Looking at the numbers, so far, this is the best deal I've got after looking for months. I figure going into it, I'll be hands off as much as I can. I'm trying to define this. I was thinking with the help of a lawyer to handle the eviction process I might be able to handle this. I have a team of service people in the area I can call on. I'm having trouble connecting with a responsive lawyer but this is my next step in creating my team. Maybe I misrepresented what I'm trying to accomplish. I figure it will be quasi hands off. I have a small team of trades people in the area I can trust handling projects.

Originally posted by @Joshua Klein :


I'm having trouble connecting with a responsive lawyer but this is my next step in creating my team. Maybe I misrepresented what I'm trying to accomplish. I figure it will be quasi hands off. I have a small team of trades people in the area I can trust handling projects.

Definitely need a good attorney.  Contract law, title, etc. 

The risk here to me is the wholesaler. Lack of transparency/paperwork and the owner holing up in the garage.  The best tradesmen in the world won't ensure you end up owning this properly.

It's like I tell people that are trying to buy with seller-financing. They're hung up on the interest rate and don't see they won't even own it. Don't get hung up on the PP and ARV and that you've been searching for months.

Make sure you will own it. Then make sure its fee simple.  Start your title search now.  Do a prelim online, then you can dig deeper if necessary. First American Title will e--mail you a full O&E for $80-$150. See who owns it and what liens are involved.  

@Joshua Klein I’m about to share conflicting thoughts.On one hand, the process of evicting someone can be disheartening, especially for a new landlord. 

I’m not familiar with evictions in Durham, but in Mecklenburg County the process is very tenant friendly. Here it can last for months and cost a landlord thousands. Also, not having the full original lease can be problematic, at least in Mecklenburg County. 

On the other hand, the difficulty removing the non-paying tenant could be the reason for why the deal works so well on paper. If you really know what you’re in for and are prepared, then maybe it’s worth doing. Plus you’d certainly learn a lot. ;)

Either way, I’d push back on the wholesaler’s deadline. I’d also stop by to talk with the owner and tenant and neighbors face to face. Getting the true picture of what’s happening could help your decision process greatly. 

Originally posted by @Steve Vaughan :
Originally posted by @Joshua Klein:


I'm having trouble connecting with a responsive lawyer but this is my next step in creating my team. Maybe I misrepresented what I'm trying to accomplish. I figure it will be quasi hands off. I have a small team of trades people in the area I can trust handling projects.

Definitely need a good attorney.  Contract law, title, etc. 

The risk here to me is the wholesaler. Lack of transparency/paperwork and the owner holing up in the garage.  The best tradesmen in the world won't ensure you end up owning this properly.

It's like I tell people that are trying to buy with seller-financing. They're hung up on the interest rate and don't see they won't even own it. Don't get hung up on the PP and ARV and that you've been searching for months.

Make sure you will own it. Then make sure its fee simple.  Start your title search now.  Do a prelim online, then you can dig deeper if necessary. First American Title will e--mail you a full O&E for $80-$150. See who owns it and what liens are involved.  

Thank you for the feedback. I got the traction I was looking for today. Last week the 3 lawyers I contacted were all on vacation. Today, one got back to me and gave me the focus I needed. He helped me through the thick of it. We have an inspection lined up for tomorrow and the plan is to have two contracts: one nullifying the old one and a new one that starts next month. Done.

Originally posted by @Lore Postman :

@Joshua Klein I’m about to share conflicting thoughts.On one hand, the process of evicting someone can be disheartening, especially for a new landlord. 

I’m not familiar with evictions in Durham, but in Mecklenburg County the process is very tenant friendly. Here it can last for months and cost a landlord thousands. Also, not having the full original lease can be problematic, at least in Mecklenburg County. 

On the other hand, the difficulty removing the non-paying tenant could be the reason for why the deal works so well on paper. If you really know what you’re in for and are prepared, then maybe it’s worth doing. Plus you’d certainly learn a lot. ;)

Either way, I’d push back on the wholesaler’s deadline. I’d also stop by to talk with the owner and tenant and neighbors face to face. Getting the true picture of what’s happening could help your decision process greatly. 

Lore, the property is not in NC, it's in VA. Either or, I think it's going to work out. All parties agreed to terminate the lease and start a new one next month if all checks out with the tenant.

@Joshua Klein just my humble two sense here, but it can be easy to go broke buying good deals. Numbers look ‘good’ in theory, but pushing the value up $33k with only an $11k rehab on a property $100k or less seems too good to be true. Plus, the headache you could potentially bump into may not be worth the couple hundred bucks you’ll end up with per month assuming they even pay at all. I’d say for your first deal, hedge your downside and find something with less steep potential downsides.

Just my thought!

Conner

Originally posted by @Conner Bland :

@Joshua Klein just my humble two sense here, but it can be easy to go broke buying good deals. Numbers look ‘good’ in theory, but pushing the value up $33k with only an $11k rehab on a property $100k or less seems too good to be true. Plus, the headache you could potentially bump into may not be worth the couple hundred bucks you’ll end up with per month assuming they even pay at all. I’d say for your first deal, hedge your downside and find something with less steep potential downsides.

Just my thought!

Conner

Thanks Conner. I appreciate your reply. We decided to go through with it. We had the lawyer look over the contracts, spoke with the tenant and all parties are willing to sign an agreement to cancel the former lease and potentially sign a new one. Wish me luck.

Josh,

I think you should go for it.  The fact that you don't know much about the property, you are in a different state, you want to sign a new lease w/ someone that is already not paying rent, you are going to have to deal w/ the current owner living in the garage and you are given numbers by a wholesaler that has no responsibility to you that it is accurate or truthful.  The only way this could be a better deal is to sign for a loan that you don't actually know what the rate, term or loan amount are.

Originally posted by @Josh Bakhshi :

Josh,

I think you should go for it.  The fact that you don't know much about the property, you are in a different state, you want to sign a new lease w/ someone that is already not paying rent, you are going to have to deal w/ the current owner living in the garage and you are given numbers by a wholesaler that has no responsibility to you that it is accurate or truthful.  The only way this could be a better deal is to sign for a loan that you don't actually know what the rate, term or loan amount are.

Josherz, you got the ticket now. Lets partner on it!

Originally posted by @Conner Bland :

@Joshua Klein nicely done! Taking calculated risks and making deals is better than not doing anything! Hope this one is a gem for you! Keep grinding!

Conner

I agree. It's more calculated than some think here. Give me a few months, I'll share with the thread how it turned out.

@Joshua Klein hey Josh, whatever the outcome of this speed bump on the long haul just take this situation as a lesson. Now you have an awesome story for the future once you tackle this problem and solve it. I’d like to hear the outcome of this in case I ever run across a situation that makes me scratch my head.

Good luck.

Originally posted by @Derek Cespedes :

@Joshua Klein hey Josh, whatever the outcome of this speed bump on the long haul just take this situation as a lesson. Now you have an awesome story for the future once you tackle this problem and solve it. I’d like to hear the outcome of this in case I ever run across a situation that makes me scratch my head.

Good luck.

 Thanks man. I'll let you know.

I got the legalities figure it out simply enough. I had everybody agreed to kill the lease after this month and start a new one with me starting the first of next month.

My intention was to get everybody to sign that and then do month-to-month. If the tenant didn't work out that month would be her last.

The inspection came back. The asbestosis pipes are leaking. the used syringes scattered over the floor made a dangerous for the inspector to inspect certain rooms. The tree shade electrician at hot wires. The inspection alone made me back out of the deal.

Questions:

did I put my cart in front of the horse by having the legal people spin up prior to having an inspection?

I don't want to sign a contract that I would be obligated to pay the wholesaler if for whatever reason the deal was not good. An inspection costs around $350. If I get one done without signing, what's to stop the wholesale are from giving the property to somebody else while I'm in the process?

@Joshua Klein I’d recommend finding a good agent that has experience with investment properties to work with. They would have saved you a lot of time and money on this one, helped you find an actual deal instead, and walked you through the whole process in correct order. A great agent and a sufficiently good property manager are worth their weight in gold to a new investor.

We bought the house, stabilized the tenant buy having her annul the year-long contract, sign a month to month and then after finding heroin, people who didn't belong, calling the cops, I didn't renew. costed me $1000 to get her out.

Also, I negotiated down to 60K which gives us an extra buffer of 7.5k. The HVAC which was assumed dead needed a $15 part. Cost us $80 with service. We are doing a full rehab on it, including bathrooms and kitchen, paint, and replacing some insolation holding a lot of the stench of cigarettes. We plan to pull the money out with a refi and start looking come March. I'll keep you all posted.