Buying from Wholesaler - Advice on steps to follow
Investor · Somerset, NJ · Member since 2012 · 95 posts · 45 votes
Buying from Wholesaler - Advice on steps to follow
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Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14yHi Amit. Good to see that you're moving forward. To answer your questions:
Regarding insurance and securing property: Insurance is your safety net but should NOT be the only aspect of your safety plan. Trust me, I've rehabbed in nice areas. You can still be a victim. What you don't secure you don't own so make sure the place is locked down TIGHT and that NO tools are left overnight. At least not any expensive ones. And your contract should read that the Contractor is responsible for theft of his tools and other personal possessions. Not you. If you need a good insurance guy give me a call and I'll give you my guy. He's EXCELLENT in pricing and service.
Money to your contractor up front is NOT normal UNLESS he's your regular Contractor and you trust him. When you use hard money your lender will not forward the contractor any advanced monies and the Contractor knows this. He has to complete Phase 1, have it inspected by the HML and THEN he gets paid/reimbursed. So really the same rules should apply with your own money.
I know we spoke and I referred you to my guy, Carlos. If it's Carlos then you're fine (although I will still want to call him tomorrow to make sure he knows that he's working off of my reputation therefore act accordingly). But I won't vouch for anyone else. And there are ALOT of ripoffs out there who take deposits then go and complete other jobs while putting you on the backburner. Now the Contractor will likely say he needs the cash for materials. If that's the case I like to meet him/her at home depot/lowes myself and buy the materials. His guys get paid at the end of the week or phase after I inspect the work.
Your initial due diligence where you crunch the numbers for potential profit should have been done already.
The only other areas to be careful in are open permits and the green card (required for 3 units and up in NJ). You may also need architectural plans if you're rehabbing in Newark (depending on hos extensive of a rehab you're doing). I'm assuming the house is vacant?
You will want to check with building to make sure there are no open permits that you will be responsible for.
And you will want to check with the Dept. of Community Affairs (DCA) in Trenton to make sure there are no violations due that must be paid before you get your green card. Their number is 609-633-6232. Any judgments they have against the property and owner SHOULD show up on title. However I still like to check by calling 609-984-7706.
If you're dealing with a 'Professional Wholesaler' then title should come up fine. However if your wholesaler is new you need to make sure that he's under contract with the correct owners and that there will be no surprises when title comes back. In fact when I wholesale I like to order title myself BEFORE I call rehabbers just to make sure I have everything worked out ahead of time.
I think that covers it. Call or email me tomorrow if you need to.
7 Replies
- Investor · Somerset, NJ · Member since 2012 · 95 posts · 45 votes14y
To clarify - When I mentioned contract, I mean wholesaler is giving me a contract.
- Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes14y
Hi Amit. Good to see that you're moving forward. To answer your questions:
Regarding insurance and securing property: Insurance is your safety net but should NOT be the only aspect of your safety plan. Trust me, I've rehabbed in nice areas. You can still be a victim. What you don't secure you don't own so make sure the place is locked down TIGHT and that NO tools are left overnight. At least not any expensive ones. And your contract should read that the Contractor is responsible for theft of his tools and other personal possessions. Not you. If you need a good insurance guy give me a call and I'll give you my guy. He's EXCELLENT in pricing and service.
Money to your contractor up front is NOT normal UNLESS he's your regular Contractor and you trust him. When you use hard money your lender will not forward the contractor any advanced monies and the Contractor knows this. He has to complete Phase 1, have it inspected by the HML and THEN he gets paid/reimbursed. So really the same rules should apply with your own money.
I know we spoke and I referred you to my guy, Carlos. If it's Carlos then you're fine (although I will still want to call him tomorrow to make sure he knows that he's working off of my reputation therefore act accordingly). But I won't vouch for anyone else. And there are ALOT of ripoffs out there who take deposits then go and complete other jobs while putting you on the backburner. Now the Contractor will likely say he needs the cash for materials. If that's the case I like to meet him/her at home depot/lowes myself and buy the materials. His guys get paid at the end of the week or phase after I inspect the work.
Your initial due diligence where you crunch the numbers for potential profit should have been done already.
The only other areas to be careful in are open permits and the green card (required for 3 units and up in NJ). You may also need architectural plans if you're rehabbing in Newark (depending on hos extensive of a rehab you're doing). I'm assuming the house is vacant?
You will want to check with building to make sure there are no open permits that you will be responsible for.
And you will want to check with the Dept. of Community Affairs (DCA) in Trenton to make sure there are no violations due that must be paid before you get your green card. Their number is 609-633-6232. Any judgments they have against the property and owner SHOULD show up on title. However I still like to check by calling 609-984-7706.
If you're dealing with a 'Professional Wholesaler' then title should come up fine. However if your wholesaler is new you need to make sure that he's under contract with the correct owners and that there will be no surprises when title comes back. In fact when I wholesale I like to order title myself BEFORE I call rehabbers just to make sure I have everything worked out ahead of time.
I think that covers it. Call or email me tomorrow if you need to.
- Investor · Somerset, NJ · Member since 2012 · 95 posts · 45 votes14y
Hi Ibrahim –
That was awesome info you gave me.
I found now that this is actually a HUD house and not the wholesaler's house. Wholesaler LIED (said he owned it free and clear) was trying to make a 10k profit but I found it online eventually and called broker directly. . I started working with broker and found it had 4 failed bids and recent one just fell through .
Here is the text from Broker w: "Amit, just so you have a jump on what is going on, there are many many violations and fines with the town. Try and get that info first, that is why 5 offers have already fallen through"
I used your info (Thanks again. I would’ve never been able to find this myself) and found about 8.5K in judgements against the property (for what , I don’t’ know) I also see that they have a bunch of open violations. I don’t know what those are. They wont’ give me the info.
1, Now, since I’m rehabbing, can I factor that into the cost of the violations since I’ll have to make sure the building is upto code ?
2. The 9K in judgements, I can work with the RE broker and see if the property bid can be decreased by 9K ( I think they will go for it)Property is in an awesome location in Union City. Price: 139. Rehab costs (including insurance,etc. 60 and I’m using 20% above contractor’s amount)
I am going to use it to rent out basically (Can realistically get 3500 a month total). ARV , conservatively, is about 290k. I have cash that i'm not using for anything (.25%) so I am not counting any holding costs.Let me know if you think this makes sense or should I drop this if 4 others dropped bid after finding this out ? Never ceases to amazon me how much I'm learning everyday.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes14y
Existing judgments are the seller's obligation to pay; I will typically write something to cover that into my offer.
Originally posted by clause for code issues:
1. Property is to be sold free and clear of all encumbrances, by good and marketable title with full possession of property to Buyer at date of closing. Note that any and all fines and citations issued by Code Enforcement up to the date of actual closing shall be paid by Seller. - Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes14y
The wholesaler lied?? Was untruthful?? WHAT that never happens!!
LOL
Many,many crooks out there.I am not sure how they sleep at night without thoughts of becoming friends with Jimmy Hoffa real soon.
- Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes14y
Amit here in NJ we typically use attorneys so hopefully you have one. He/she should bring up the issue regarding the violations with the seller's attorney. As Steve stated, these should be the seller's responsibility.
And for those 'undisclosed open violations' go to the state's website and fill out an OPRA (Open Public Records Request) to get a copy of the violations. Should be public record.
Yes Wholesalers lie, as do rehabbers, buyers, Contractors and even sellers. But numbers don't so hopefully you've crunched these real well. If you're not sure, call me and I'll walk through the place with you (I think your farm area is near me) and I'll help you out with it.
- Investor · Somerset, NJ · Member since 2012 · 95 posts · 45 votes14y
Sorry - I should have clarified. I later found out this was a HUD property through the broker and Broker said he had to work with the Asset Manager to figure out what to do. He is also getting an OPRA form. The problem is the city has been unresponsive so not aware of the city violations but he is working on it.
I know typically I would be buying it free and clear but the broker said HUD is a bit different. Anyways, they pulled the listing for now until they figure out what to do. Have a good relationship with Broker as I had the highest bid in so we'll see what happens. I didn't expect this much drama but I'm not going to give up. Worst case, I've learned a ton I can use for the next deal.Ibrahim - Here are my numbers. The only thing I can't verify are the rehab costs but i've used 20% over (actually I put in a cushion of about 24%) over the bid I got and its not a gut rehab so I feel fairly comfortable. Again, property is 139k. Rehab costs are 55k. I am putting in 6k for insurance, legal,etc. Note, buying with own cash and my costs of funds is zero for now since my biz partner and I have funds waiting to be deployed earning .25%. So I am basically getting the 3-fam for 200k. Taxes are 8100. These are all 3-br and I have verified that I can get 1200 based on the quality of finishes i'm putting in (older 3-br apartments rent for 1150 so a new place will easily rent for 1200). Demand is through the roof in this area and vacancy is 2.9% in this particular area. To be conservative , I'm using 1150 a month or 41,400 a year. Insurance is 2200. Water/sewer is going to be 2400. I figured 4200 for maintenance and reserves. Common Electric is 1,100 a year. Vacancy,etc. I put another 5% of rent. Management cost to me of $2,000. This gives me 22,400 net or 11.2 cap.
I want to cash out 75% after a year and should be able to get a valuation of 300k and will be able to pull out all the money I put in.Please let me know what gaps you see in the numbers.
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