All Forum Posts by: Steve K.

 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!

Sell and start fresh. 

There are too many ways that owning a house with an ex can get messy. For example she starts dating a carpenter or a handyman type (or even worse a wannabe carpenter or handyman) who moves in and does work on the home and claims they should have equity too for making those improvements. Or she starts dating a guy with a dog-sitting or weed growing or meth cooking business who does damage to the house. Or the market goes crazy and the property value goes way up but she says she gets all the gained equity because she's been paying the whole mortgage all this time and she's dating a lawyer now who is on her side... Or the market tanks and the value of the house goes down and that creates issues (selling at a loss, who brings money to the closing table, etc. I've actually seen this happen and it's ugly). Or she loses her job and can't pay the mortgage and she's dating a loser junky now and they expect you to pay the mortgage... Or she stops paying either on purpose or by accident and doesn't tell you and that wrecks your credit... Or it goes to foreclosure... Or she just cuts you out of the deal somehow and doesn't give you a penny and she's dating a mixed martial artist bouncer now so what are you gonna do, etc. There are too many ways for it to go sideways and only one way for it to work (you stay on good terms with your ex and everything goes perfectly with the house, you split the proceeds fairly when you sell). But you're dealing with an ex and that's not usually easy or fun. To Mike's point, it can also harm your ability to move on with a new partner who probably will not be thrilled to learn that you're still financially involved with your ex... 

Ideally you have a contract in place that spells out what happens if you split up or one of you dies? If not then Judge Judy would have a field day with this teachable moment.

I'd sell or let her buy you out at fair market value as determined by an appraisal if she wants to keep it. She'd probably have to get a new loan in that scenario however obviously in order to get you off the current loan unless the loan is assumable, but that's the downside of linking your finances on a 30 year contract without being married. Good luck!  

I would seriously reconsider over-leveraging yourself with HELOCs even if you buy in a good area. HELOCs are good for short term debt: rehabbing for a BRRRR/ to sell or flipping etc. Very high risk and nearly impossible to make the numbers work for long term buy and holds even back in 2017-2021 when rates were favorable. Buying hood properties with what is basically credit card debt in today's market is so extremely high risk it borders on recklessness. The chances are super low that a HELOC will make sense on this property anyway with today's rates, if you can even get one which is unlikely, so it's basically a moot point IMO. See if @Jay Hurst has a better financing option for you in Texas and get out of this mess while you still can without losing a ton of money and sleep would be my recommendation! Good luck with whatever you do though!

One or two cans of this and you're all set! $5/can. https://www.homedepot.com/p/Spectracide-18-5-oz-Wasp-and-Hor...

Agree with above. You may find $100k properties that provide meager cashflow like $300/ month on paper but in reality they will be paper tigers. Once you have experience and learn to budget for occasional big ticket cap ex items that every house has whether it’s 100k or 1M, it becomes really hard to make any profit. Some people are successful in this price point but almost always by being local and self managing like a hawk. If you read these forums for a while there are hundreds of posts on here of out of state investors attesting to this phenomenon and that was even the case when rates were at 3%. With today’s rates you can only “cash flow” on these by paying cash but there’s really no point in that IMO. Much easier to put your cash in a different investment vehicle with less risk. Go for higher quality properties in better locations as rental properties are priced for risk. Location, location, location really is the one thing that matters most. Good location= good investment over time even if you have to pay more to enter. Bad location= lose money and sell at a loss after a few years of frustration.  

This is a great strategy and our former primaries have become the best performing rentals in our portfolio. It's nice getting a better interest rate than an investment property, and putting less down. I also like how I know these properties much better than our properties that I've never lived in, making them easier for me to maintain, and while we're living there I can "tenant-proof" them. It's true that it's harder to find properties that will cash flow once you move out in higher cost of living areas, but overall returns make that a moot point in my opinion because appreciation is also much higher in these better locations. Rent appreciation also tends to be higher and cash flow tends to be much better over time as rents increase more steeply, but it may take several years to spin off positive cash flow as opposed to right away. Some of our properties that were cash flow negative initially now have the best cash flow thanks to rents going up in these great locations, and very little turnover, vacancy loss or tenant damage, etc. I'm not opposed to putting more down to increase cash flow also (COC return suffers of course and there's an opportunity cost to having that trapped equity but it can make sense in certain scenarios).

Just curious what was the scope of work Joe? What all did they do? How long was the section of sewer pipe that they repaired? For $23k, they better have replaced the whole sewer line with double-wall aircraft aluminum and platinum fittings! I’ve gotten by with just cleaning the roots out annually at a few of our properties with clay pipes, and just replacing sections of collapsed pipes at others and the highest I’ve paid was $10k for replacing a ~30 foot section of collapsed orangeburg (that stuff is the worst). I’ve had clients pay $100k for a sewer line though (commercial properties, complicated lines running under parking lots, sidewalks, landscaping and the bid includes replacing the landscaping too, etc. or requiring a permit from the city to close off the road for the day with traffic control, etc.).

I find sewer lines to be one of those things that if you get 3 bids, they can be wildly different because some companies will recommend only what is necessary such as just cleaning out the roots annually for $150, or replacing just a small section that has an issue for $2-3k, while other companies like to recommend replacing the whole line whether it needs it or not, charging $20k every time they can get away with it even though the average cost is $5-10k (which is why some of these companies have a reputation for being scammers). There are several companies I know locally who recommend replacing every single line that they scope, whether it needs it or not and I won’t let them near my properties or any of my clients properties that are being inspected by buyers. No sewer line is perfect and most can be repaired or limped along with cleaning regularly or minor spot repair rather than requiring expensive work or replacing the whole thing.

Hopefully you can work this out amicably and negotiate that price down! They should have at least communicated with you when they realized the costs were ballooning well above a normal sewer line repair cost, before proceeding with that work. I would really drill down on how and why it got to be so expensive, why they didn’t let you know before doing the work, and let them know you would have gone with the $9k bid had they communicated properly, then see if they will negotiate with you. Maybe the price is actually justified depending on what they actually did. Maybe $23k was an accounting error and they meant $2,300 lol. I’d be curious to hear what all they did and how it got to be so expensive. Good luck!