All Forum Posts by: Chad Benedict
Chad Benedict has started 4 posts and replied 87 times.
Post: Exit Strategy for a (possibly bad) Wholesale deal

- Specialist
- Austin, TX
- Posts 109
- Votes 95
I also echo @Brian Gibbons. Use a standard state contract or something prepared by an attorney. Spend the money if necessary. Don't download contracts from the internet or even use contracts from other investors without having them vetted by an attorney first.
If you're brand new and want to learn about contracts, go to your local used book store and buy the Contracts textbook that it used for you're state's real estate exam prep. It's not quite the same, but if you read through and take the quizzes, etc., it will give you at least a little better understanding of the most common forms you'll be using and what addenda are required for your state.
Post: Exit Strategy for a (possibly bad) Wholesale deal

- Specialist
- Austin, TX
- Posts 109
- Votes 95
Congrats on getting out there and trying to make something happen, @Darrell Jones. We all make mistakes (I do everyday), and you're learning from them.
You definitely need to have an idea of who you're going to sell a property to, or at least how you're going to get it sold, before you put it under contract. You don't necessarily have to have your own "buyer's list," but you need to know how you're going to market it or partner with someone else to sell it. If it's truly a deal, it won't be hard to sell in today's market. Also try to make sure your rehab numbers are correct and leave some room for error.
As a wholesaler, I am always completely honest with sellers about exactly what I will do with their property. I'm also a licensed realtor, so I'm held to a higher legal standard anyway (which is a good thing). I'll answer any questions they have about what I'm doing or investing in general. I once spent an hour talking to a guy who had all these questions about what I do as an investor. And guess what? He ended up selling me his house, and I may buy another one from him in the coming months.
When I meet with a seller, I essentially say something along these lines (but you have to imagine this flowing more naturally with the conversation): "I'm an investor, and I'm looking for properties both for myself and for other investors, depending on the deal. I have a group of investors who want to buy properties off market without having to go through realtors. Some of them are looking for houses to flip, like you see on TV. Others are looking for houses to use as rental properties. But they don't want to mail letters or go out and search for properties themselves. That's why they rely on me. I go out, meet with people like you, and put properties under contract. I then go to my list of investors and try to sell the property to one of them for a higher price. They end up buying the house from you, and they pay me the difference in price as a finder's fee for doing their work for them. That's how I get paid. They'll pay for all of the closing costs and you won't have to pay any realtor commissions or other fees (except prorated taxes). That's what I plan to do with your house if you sell it to me, and I'm pretty sure I'll be able to resell it to one of my investors. But I just want you to know there's always a chance I won't be able to sell it and I might have to cancel the contract. I'll likely know with 7-10 days whether I'll be able to sell your property. If it doesn't sell, then I'll cancel the contract and you can go sell to someone else. Or if you want out of the contract and I haven't resold it yet, just let me know and I'll happily cancel it."
I go into a little more detail, but I try to keep it as simple as possible. That's all you have to say. It's 100% honest on every point, and I find people prefer that over big promises. I think some sellers get nervous when an investor says, "I guarantee I will close on your house! Don't sell to anyone else." Some people respond to that, but others are suspicious of it as they know nothing in life is certain. If a seller prefers to sell to a different investor because that person guaranteed to buy their house, that's fine with me.
Regarding contingencies and how you frame the contract, I'm not sure how it is in Connecticut, but in Texas, our standard state real estate contract includes a paragraph for an Option Period. When I put a house under contract, I try to always put in a 21-day option period (negotiable, of course, but I always start with 21 days). And I explain to the seller that this gives me the unrestricted right to cancel the contract for any reason within 21 days, and I receive my earnest money back. No other contingencies necessary. Sellers are accustomed to some type of option period in contracts, whether it's for inspections or financing or whatever, so they're never surprised by this. In fact, it's in line with what they often except in real estate transactions. Again, I explain to them that this gives me time to market the property to my investors, and it gives my investors time to bring in a contractor or inspector and look at the property, even though they're purchasing it as-is. And I tell them, with full disclosure, that if I can't sell it, then I'll cancel the contract. With the standard Option Period built into the Texas contract, it's never necessary to have a "weasel clause." As others have said, it can also be legally dangerous to use the term "partner" in contractual language. My contracts only ever list my LLC, no one else.
The are other things I do to protect myself in any transaction, which people on BP may have various opinions on, and I get that. The first is, I use an addendum prepared by my attorney when I'm buying a house. It addresses some issues that are not in the standard contract, including: disclosing that I'm a licensed agent acting for myself and not for the seller; providing some clarification around "time is of the essence" issues; disclosing in writing that I intend to resell or assign the property immediately for a profit; giving me the right to advertise the property for sale and show the property to buyers; and it has what I jokingly refer to as the "you can't sue me clause." All it states is that if I default on the contract, the seller's exclusive remedy is to keep the earnest money deposit, not to force me to buy the house. Again, I explain this explicitly to the seller with a little humor, and they get it. It's not a total "out," as I still lose my earnest money (usually $250-$500, more if it's a higher-priced home), but from a business risk management perspective, it's good practice. Defaulting would be if I didn't perform on the contract after the option period had already expired, or if my end buyer didn't close. Most wholesalers I know in Dallas try to use only $50 or $100 EM deposits. I actually voluntarily offer more a little more because while I never want to have too much money tied up in a contract (I'd rather have that money working for me elsewhere), I do want the seller to know that I'm serious and that I have some money on the line as well.
The second thing I do to limit my liability is with the assignment contract when I'm wholesaling it. The assignee who purchases it from me agrees to assume all legal liability if they default on the contract. So once I've assigned the contract to them, if they don't close, the legal liability is on them, not me. I'll also never wholesale to them again, but that's a separate issue. This is also why I will wholesale at a discount to people I know will close on the deal. I'd rather get a slightly lower wholesale fee from someone I trust than sell at a higher price to someone I don't know who strikes me as "iffy." I don't get paid my full assignment fee until the deal goes through, so I have every incentive to make sure it closes. Plus I feel an obvious obligation to the seller to make the deal work.
Keep in mind that contracts are complicated legal instruments, but they're also just words on a page that aren't necessarily good or bad (actually that's not true, I've seen some bad contracts). My point is that what is more important is your intent and how you approach your business from an ethical standpoint. If you use a standard contract and add some language that limits your business's legal liability, one can argue that's good business practice. If you're adding language so that you can knowingly walk away from a deal at the last minute, waste a seller's time and money after you've promised them the moon, and not have any skin in the game yourself, that's different.
There are caveats to all of this. I haven't put a house under contract yet where the seller was in some dire straights, where if I didn't close in time they would lose the house or suffer a significant financial loss. Whenever I eventually find those leads, I will handle it very differently as I never want to be in the position of causing financial hardship for someone. My whole goal in this business is to help people solve their problems. Again, just be honest and people will appreciate it!
Best of luck,
Chad
Post: Latest Project Photos - BP Partnership

- Specialist
- Austin, TX
- Posts 109
- Votes 95
Well done as always, @J Scott! Looks amazing.
Chad
Post: Yellow letter nets 5 Austin properties

- Specialist
- Austin, TX
- Posts 109
- Votes 95
Awesome story, @Jon Klaus. Thanks for sharing!
Chad
Post: SFH Analysis Advice, Grand Prairie TX

- Specialist
- Austin, TX
- Posts 109
- Votes 95
I use rentometer just to get a sense of the neighborhood and see what the range is. Sometimes you can see which ones are active listings. But I agree it's not nearly as good as the MLS for running rental comps.
Post: Condo Purchase and HOA Dues

- Specialist
- Austin, TX
- Posts 109
- Votes 95
You should talk to the management company that's managing the condo complex. Let them know you're looking at one of the units, and ask them as many questions as you can. Make sure you get a copy of the HOA documents. Find out if they have any planned maintenance or assessments, and also how much the HOA has in reserve. They may not give you this info until you actually have a property under contract.
Be careful with condos and HOAs. Make sure that the rest of your budget works as normal, then make sure you add in the HOA fees and also plan for possible assessments. If there's a lot of obvious deferred maintenance, and there hasn't been an assessment lately, you could get hit with a large assessment as soon as you buy the properties.
Also find out as much as you can about the HOA itself and how it is run. If the property doesn't look like it's run well, it could be the property management company's fault, but most of the time it's the HOA board's fault. A bad HOA can make owning a condo a nightmare and reduce the value of your investment. On the other hand, a well-run HOA is awesome. Talk to neighbors and realtors and get a sense for what's going on in the area.
Good luck!
Chad
Post: SFH Analysis Advice, Grand Prairie TX

- Specialist
- Austin, TX
- Posts 109
- Votes 95
The appraised value on the county website doesn't translate to the value of the house. The current market value of the house or the future ARV could be much higher or lower than the county appraisal depending on the condition of the property and a variety of other factors. The only way to find the ARV is to see what comparable properties have sold for in the past few months in the same neighborhood.
Same with the rent. The only way to know the market rent is to look at comparable rental properties. You can use the MLS, craigslist, or a site like rentometer.com.
I personally would be budget 8% for vacancy, 10% for expenses, and 5% for CapEx. It's also good to budget 8-10% for a management fee even if you're planning to manage it yourself. That way if you ever turn it over to a property management company, it will still cash flow. Other investors use lower numbers.
I echo Sean and would be very surprised if you can acquire the property for only $80K if it only needs $5K in repairs. I'd budget more for repairs. I'd also be surprised if you could really get 20% off the asking price, but you gotta start somewhere!
Good luck!
Chad
Post: tenant application questions

- Specialist
- Austin, TX
- Posts 109
- Votes 95
There are a ton of red flags here, including the fact more than one of them "forgot" a car loan they signed for and left that off of the application. Makes me wonder what else they've left off or misrepresented, or that they signed for and forgot.
Without knowing more about the credit obligations, those would concern me, too.
What's happens if the kids get in a fight with dad? What if the boyfriend breaks up and moves out? So many things could go wrong, and the dad doesn't have the income to pay rent by himself.
I don't have a problem with the mastiffs as long as they're outside and you collect a large pet deposit. If they're indoors (and remarkably, some are), they're big enough to tear up the house.
In general every person 18 years old and up who is living in a property needs to sign the lease. Run credit and background checks on everyone, and charge a separate application fee for everyone. Verify absolutely everything. Use an online service if you need it.
It's your call, but if I were in this situation, I would probably keep looking for other tenants.
Best of luck!
Chad
Post: SFR now zoned retail

- Specialist
- Austin, TX
- Posts 109
- Votes 95
Hey @Scott Robinson, you should check with your local zoning office for the details, as @Sean McNamara mentioned. Just call them up and let them know what you're doing, and they'll answer your questions. Find out exactly what the zoning change is.
Generally speaking the property is now what's called "nonconforming." This means the zoning has changed but the original use is still allowed as long as you don't make any significant changes to the property or use. So as long as you keep it as a SFR and don't make any big changes, it shouldn't be an issue. It could theoretically stay an SFR forever. However, if you were to tear the house down and try to build a new house, it wouldn't be allowed. At that point, it would have to become retail. But nonconforming properties can usually be sold and remain nonconforming as long as their use remains exactly the same. It all depends on the local ordinances.
The real question is, if the area has been zoned retail, how desirable will the property be to a future homeowner? Are they going to want to live among other commercial properties? Also, if it's zoned retail, could you potentially find an investor who wants to turn it into a retail property? And how easily can you find a commercial buyer?
Whatever you do, make sure you get detailed info from the city and zoning office regarding the current and future use. You may even need to get proof of a variance, or do a variance request.
This is not intended to be legal or financial advice.
Best of luck!
Chad
Post: Dallas Texas Hard Money and Portfolio Lenders

- Specialist
- Austin, TX
- Posts 109
- Votes 95
@Ted DeKowzan If you're looking for a local hard money lender, I recommend Frank Friesenhahn with DFW Investor Lending at www.dfwinvestorlending.com. Great guy, everyone in his office is an appraiser as well. They have the usual hard money rates, but they're easy to work with and could be helpful to someone who isn't local.
Best of luck!
Chad