All Forum Posts by: Steve K.

I always recommend a sewer scope and definitely get them on my personal deals. It's one of the few things you can't see during a showing/ visual inspection and I've seen issues up to $100k with sewer lines so it's worth the $150 to send a camera in and see what's going on. Still searching for the perfect sewer line, most have at least some imperfections even new construction. I've offered "as-is" several times but with the only contingency being sewer scope because it was the only remaining unknown. We have expansive soils here (clay that expands when it gets wet) as well as some older cast iron lines and even some orangeburg so it's common to see sewer line issues (often just some tree roots that need to be cleaned then the line re-scoped). One time (the $100k) time, we found that the sewer line from a 32 unit apartment building actually just dumped into the creek and was never hooked up to the city sewer system which ended a few blocks away.  

$2300 down is a (bad) joke. That's more like a typical security deposit to rent an apartment, lol. They wouldn't have any skin in the game and could just walk away and leave you high and dry if things go wrong with the property. You'd have to right the ship on your own to protect YOUR investment that THEY messed up. The second offer is both insulting to you and also tips their hand because if they have ~$50k in cash then they should be able to put down a higher down payment if they are serious about the property. I think you made the right call here. This isn't the serious buyer you're looking for, and you're not the desperate seller that they're looking for. 

Good detective work James. It's actually a shame this wasn't caught earlier IMO. So much really bad advice was disseminated on here over the years by this guy. Like "renting to section 8 tenants is actually really easy", "your agent is not on your team just connect with people like me doing hundreds of deals every day and use my team instead", that hood properties will have "15-25% net caps" for beginner out of state investors when in reality they will definitely lose money every month due to the rent not being enough $ to maintain a rental property, never mind all the tenant issues involved with this property class or the difficulty of managing them remotely... but he's done thousands of them just this week while sitting on the beach in Florida...  Admins @Rene Hosman, is there any way to go back and delete all of the downright dangerous advice he gave to beginners over the years on here so that the forum archives aren't full of BS?  BP should have a rule against giving terrible advice. 

I’ve used seller financing as both a buyer and a seller and it can make a lot of sense in certain circumstances (for example I used it as a buyer when I reached the maximum number of conventional loans I could get, and I’ve used it as a seller to both increase my net proceeds (due to collecting interest as “the bank” in addition to the sales proceeds) and to lessen my capital gains tax hit by spreading it out over a few years).

The red flag here for me would be the willingness to overpay when they’re not bidding against anyone. Why would a smart investor do that? That sounds like a strategy that some of the YouTube gurus are teaching to wannabe investors with no money or experience and that is going to end up with a lot of deals going sideways as these buyers will probably fail because overpaying is obviously a bad strategy to begin with. So first of all make sure you’re not dealing with somebody clueless like that because they would be considered high risk to lend money to. Why are they wanting to use seller financing? 

If they are legit and you don’t have any other offers then I’d have the conversation with them but I’d want a higher than normal down payment (ideally 50% or at least more than the normal 20%), a higher than normal interest rate (at least a point above the prevailing rate so like 9-10% right now, but you can structure it as interest-only payments so their monthly payment is still lower than conventional), amortized over 30 but with a balloon in 3-5 years, something like that. The buyer would need to show solid financials also of course (good credit, experience operating rentals, proof of funds for down payment and adequate reserves to cover any unexpected cap ex).

You can secure the property with a promissory note drafted by a lawyer or a title company, but keep in mind that “taking back the property with the note” as it is often pitched by gurus is not always actually that simple. You may end up needing to go through the whole foreclosure process which can take a lot of time and cost a lot of money, and you may end up getting the property back in much worse condition than when you sold it, potentially with a squatter in it and months of lost rent, and in a worst case scenario you will be in a much worse position than if you had just sold it outright. That’s the risk. So vet the buyer very well.

Also think about the property. Is the buyer going to have the same issues with the property that you’re having? Will they have trouble making the payments to you while also having enough money to keep up with the maintenance and repairs/ tenant issues/ all the expenses involved with owning the property? If so then the chance of them defaulting on your seller finance terms is high and you’ll still be affected by the same problems with the property that exist now, you’ll just have much less control over it so your risk “being the bank” on this property is going to be high. 

Why would you need the tenants permission to send an inspector in? Just provide notice that the inspection will occur on X date at X time and and then send the inspectors in. Make sure they have keys in case the tenant isn't home, so they know they'll be able to get in. Have your Realtor set up a lockbox there with keys or meet them there to let them in. Ideally you'd be there too (or a manager if you had one) as that is best practice in my opinion, but being remote you just have to outsource everything to people you trust. 

Quick google search on Texas rules around entering YOUR rental property: "In Texas, landlords are required to give tenants reasonable notice before entering their rental property for an inspection, but the law doesn't specify an exact timeframe. 24-48 hr. notice is generally considered appropriate. Landlords should also select a reasonable time for the entry to occur, such as between 8 AM and 6 PM during weekdays. It's a good practice to provide notice in writing, and to indicate the time that you left the unit when you are finished. Landlords can enter a tenant's property for a variety of reasons, including:

• Making repairs or replacements
• Responding to a tenant's request
• Removing unauthorized window coverings
• Preventing waste of utilities
• Changing filters, testing, or replacing smoke detector batteries
• Inspections
• Helping with an emergency inside the unit
• Posting a notice of eviction"

Research your state laws because some of your comments indicate a lack of understanding of the landlord/tenant laws where you are operating (like threatening the tenants to keep the security deposit if they don't respond to you, I doubt that is actually a valid reason to keep their deposit, or evicting for late payments, or charging the tenants for your warranty repairs because you missed your 11 month inspection window which was your responsibility, and it looks like your lease says you can charge up to 18% interest for unpaid fees, is that actually legal?). You may just want to hire a good local property manager...

Wow I just got caught up on this @James Wise, bummed I missed the live action. You clearly missed your calling, you were meant to be James Bond. Not that it would take an MI6 operative to tell that something was off with that dude. He gave the WORST advice on here, clearly had no idea what he was talking about then would say stuff like "Your agent is not on your team, just connect with people doing deals. Like me I'm doing 100's of deals a day, I did 500 last week all 15-25% NET CAPS". Don't trust your agent, trust me the unlicensed "real estate consultant" who is clearly full of crap instead... uh, what? 

I thought about asking him what the difference is between an agent and a "consultant" several times when we disagreed on here/ when calling him out for giving terrible advice but held my tongue. I always got the impression that he had a bad criminal record or never got his high school diploma/ GED equivalent or some other issue was preventing him from getting a license, because he was basically just brokering without a license but calling it consulting (I don't know any of that to be true for the record, that was just the impression that I got from his comments and might explain why he used a fake name?). I wonder how much $ he made referring people to 5 points (which seems to have been a crappy company to refer people to if it's true that their license is suspended). Crazy stuff though, this industry never fails to amaze me with how shady it can be.  

 How many cases of Gator lenders being ripped off have you heard about in the group so far?  

Wholesale deals are not actually "off market". They are just a different market than the MLS. Most deals are still being marketed to multiple buyers. In fact many properties being shopped around by wholesalers are actually just expired MLS listings (properties that failed to sell on the MLS) or active MLS listings under contract by a wholesaler. True off market deals are ones that you find yourself, direct from the seller without a wholesaler or any other middle person involved.

But to answer your question on how to do DD on a wholesaler/ what to ask a wholesaler: You have to do your DD on the property itself. The wholesaler won't disclose any issues that the property has that could prevent them from getting paid. Always run your own numbers on everything, just like when buying on the MLS or directly from a seller. You have to do your own due diligence because once the deal closes, you're on your own.

Although rare, there are some good wholesalers so it's important not to make absolute, blanket statements. However the ratio of good wholesalers to terrible wannabe wholesalers is probably 1 good wholesaler for every 10,000 bad wholesalers. Most have never done a single deal, have no money to close on the property if needed and have no clue how to estimate fair market value or ARV or sell a property.

The good wholesalers will have experience, knowledge (provide accurate ARV estimates or at least close), integrity in putting together win-win transactions, and a list of actual real cash buyers ready to buy (or capital/ capital partners to close on the property themselves if they can't find a buyer), so that the seller isn't left in the lurch and harmed by having their property locked up by someone who doesn't actually have any buyers or a clue on how to sell the property, or any money to buy it. Bad wholesalers don't know what they are doing and put home sellers in more financial trouble than they were in before they met the wholesaler. Tying up a distressed sellers property then not producing any results for them can lead to the property being foreclosed on and the seller being seriously hurt financially.

Here is one example, check out this thread from a few years ago: https://www.biggerpockets.com/forums/93/topics/889922-i-got-... (TL;DR version: wholesaler from NYC got a property in Mississippi under contract, then ended up helping a scammer with a fake title company steal $10k earnest money from a buyer (according to what was written in the thread of course, I have no firsthand knowledge of what occurred). This is what can go wrong when you have beginners wholesaling who have no training in real estate, no experienced managing broker to go to for advice, no license, no E&O insurance, no knowledge of how to avoid scams, no regulatory body to answer to, no relationships with other quality people in the industry like title companies, lenders, contractors that they can refer to help people, etc.

Why not just get your license and sell real estate the traditional way? While still low, the chances of success starting as a beginner are much greater as an agent than becoming one of the very rare highly successful wholesalers IMO. Most try it for a few months, waste a bunch of people's time but don't actually do any deals then go on to something else. This is actually one of the main reasons many agents and investors may not like them generally speaking (they are often not serious professionals with a proven track record of success, the vast majority are struggling to find their first deal and are time-wasters to interact with).   

I self manage some of my properties (the Class A ones near my house), and have management for others (the Class C+/B- ones farther away from my house). Self-managing is not that hard and the properties that I manage perform much better (less turnover, better managed, don't have to pay a PM). I wish I had the time to manage all of my properties but I don't. If I only had one, obviously I would just self manage. That said, there is a learning curve. 

I'd recommend starting by researching your local landlord/tenant laws and learning them inside and out. Laws also change often so you have to stay up on those changes. In my area there is a great landlord/tenant handbook on the county website that is a great resource, perhaps your area has something similar and I'd get super familiar with that.

My biggest advice is screen well and place good tenants. However while doing so you also need to make sure to comply with any fair housing laws that apply to your property to make sure you are not at risk of being accused of discrimination. Research the appropriate laws for your property and follow best practices to avoid any discrimination accusations: use the same criteria for everyone who applies, know what the protected classes are, which questions are legal to ask and which aren't, and only deny applicants for legal reasons etc. As an owner-operator you will be able to screen tenants a little more carefully than a PM typically does in my experience. 

I used several lease templates that I found as a starting point, then created custom leases for my properties from those, and had my lawyer review them. That worked well for me. I just advertise on Zillow/ Hotpads/ Facebook Marketplace etc. and use a background check website. CTM econtracts (similar to Docusign, writeable PDFs will also work) for applications and electronic lease signatures. No other software. Good luck!