Confusion With My First Deal

2 Replies

Hey everybody!

I'm about to get my first wholesale deal under contract! I have some concerns regarding the contract, repair costs, and what to do after I get his signature.

I've determined this property's ARV to be $110K - $125K and I'm getting it under contract for $54K and hopefully sell it for around $65K.

It's a flat roofed, 3 bed, 1 bath, 864 sq. ft. SFR sitting on 10,800 sq. ft. of land.

First, needs a new roof, a kitchen, flooring and some cosmetics, basically a full renovation. I'm estimating the repairs to be between $20K - $25K (I'm actually not sure at all about this estimate). Another problem with the property is the owners are tax delinquent $4,000. Somebody bought the tax lien about a month ago. 

I'm not sure what to do about that problem. Does it becomes the buyer's problem, do I re-negotiate with the seller? I'm scared to do that because he had other offers even a higher offer than mine but I agreed to a faster closing.

Second, I'm going to be using the FAR BAR As-Is contract. It's about 9 pages long and I honestly don't understand most of it. I'm meeting with the seller tomorrow to sign the contract. I don't want to mess it up and seem like an amateur. If I don't have a title company yet, do I leave that stuff blank? I have one in mind but they're closed on weekends?

I've been going crazy all day trying to figure this stuff out. Any advice would be great. Thanks guys!

Originally posted by @Jonathan Loynaz :

Hey everybody!

I'm about to get my first wholesale deal under contract! I have some concerns regarding the contract, repair costs, and what to do after I get his signature.

I've determined this property's ARV to be $110K - $125K and I'm getting it under contract for $54K and hopefully sell it for around $65K.

It's a flat roofed, 3 bed, 1 bath, 864 sq. ft. SFR sitting on 10,800 sq. ft. of land.

First, needs a new roof, a kitchen, flooring and some cosmetics, basically a full renovation. I'm estimating the repairs to be between $20K - $25K (I'm actually not sure at all about this estimate). Another problem with the property is the owners are tax delinquent $4,000. Somebody bought the tax lien about a month ago. 

I'm not sure what to do about that problem. Does it becomes the buyer's problem, do I re-negotiate with the seller? I'm scared to do that because he had other offers even a higher offer than mine but I agreed to a faster closing.

Second, I'm going to be using the FAR BAR As-Is contract. It's about 9 pages long and I honestly don't understand most of it. I'm meeting with the seller tomorrow to sign the contract. I don't want to mess it up and seem like an amateur. If I don't have a title company yet, do I leave that stuff blank? I have one in mind but they're closed on weekends?

I've been going crazy all day trying to figure this stuff out. Any advice would be great. Thanks guys!

I'll assist where I can and try not to get too deep. 

Just a few things: How did you conclude the ARV to be between $110K - $125K?

Hopefully you are using the comps of sold properties in a max of one mile radius of the subject property that sold within the last 90-120days.

Since you're still in the newb zone, you should have a licensed contractor (with a few good referrals) accompany you to the first couple of property visits. 

Since someone purchased the tax lien already its nothing you can do about it but it will be paid off before title ownership changes and that will be deducted from the seller's money...

As far as the "FAR BAR contract" that you don't understand, get rid of it and find another because if you don't understand it, you can't possibly explain it to the seller and you wouldn't have the slightest idea what you are signing. You might get into something deep and wind up losing your shirt. Signed contracts are binding in a court of law! The option if you can't find another contract in time; then you need to find a real estate attorney to decipher it for you. The option will cost some $$$ of course. 

Generally you must have the Purchase & Sale Agreement signed off on before you meet with the title company to start abstract of title process towards closing.  However, there are online title searches that you can do on your own(before getting the sellers J.Hancock )and it usually takes around 72hrs up to 1 week to do(you just need the full address). Its merely for you to see the chain of title. Prices vary. 

Kudos,

Mary

I would say this. Look on this as an opportunity to learn. You should think to pass this up since in involves so much that you just do not know. Certainly do not use or sign a contract yourself where you do not understand the document completely. Any time you sign or use a contract you want to know every single detail of it thoroughly. Also since you do not know what ARV really is then you certainly are not skilled at deriving and figure you can count on. Having a licensed and currently working or operating contractor will help. You must be 100% or at least 99% sure of any expected repair cost.

Do not be in such a hurry. Learn first and when you are sure about what you are doing then you will be ready to do a contract. If you do not understand things at this point then I suspect you also do not have a buyer lined up. What are you going to do if you get this house under contract if you cannot find a buyer ? You will only have wasted more of your time and any resource you put into your effort. 

I really recommend to newbies to consult an attorney and have him draw up a contract you can use and that you fully understand but think and plan ahead. You need to build up a list of potential buyers otherwise its like jumping out of an airplane without a parachute. You have no idea where you are going to land or how you are going to get out of any situation you may get yourself into while all the time the owner is looking at you and how well you perform what they expect from you. 

Have you verified whether the owner really owns the house outright or is there any kind of a mortgage on the property?

If the house is owned outright or if there is a mortgage you need to be sure that the owner will get enough to pay off the tax lien at minimum. However the title company usually will take care of that and take from the owner's proceeds enough to pay for the tax lien. 

Give yourself enough time to get applicable real and current comps and current estimates or quotes from real and licensed contractors for any repairs. My thoughts are that you may not even know what to ask for from contractors if you are not familiar with what it takes for a building or a house to be sound. Your ARV should fit with the comps with all the same features of those houses that sold in the area within a period of the last 90 days or even closer to the present if available. A real estate agent might help get that for you or if Redfin is available in your area and you know how to use that site you might be able to come up with adequate and useful comps.

Ask yourself if you really know how to analyze a house for value or repairs. You do not want to come off as an amateur but in fact that is exactly what you are but like I said use their opportunity to learn and do not bite off more than you can chew.

Try reaching out to others that may be doing this already in your area and see what you can do about consulting them, networking with them, meeting with them or learn from them if possible.

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