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Updated over 6 years ago, 09/13/2018
Wholesale Cape Cod, Massachusetts, Bourne, Fall River,New Bedford
Newbie on Cape Cod, Massachusetts interested in Bourne, New Bedford, Fall River, all of cape cod and Plymouth.
I have been curious about calculating cost of repairs while looking at wholesale deals. Does anyone have pointers on how to get in the ballpark without having a contractor on site. I have been playing around with the PB calculators and find myself throwing numbers like 50k or 60k worth of repairs on house but in reality, I may be 20k plus or minus since I have no real knowledge on the subject.
If there are there any active wholesalers in those areas who could shed some light on this topic I would greatly apricate it!
Should I just link up with a solid contractor who can see the houses with me or is that not needed?
Thanks!
@Alexander Wardell Wholesalers generally don't do repairs. They get a property under contract and then try to assign that contract with their markup attached - which, by the way, is illegal in Massachusetts unless you close on the property and then re-sell it.
It sounds like you're talking about more of a fix & flip scenario, which is perfectly legal and in my opinion a good way to make relatively short term money. By short term, I mean months, not weeks.
@Alexander Wardell You really need to get contractors in to give you a materials and labor bid. If you don't know any contractors you absolutely trust, then get several. Pay them $50 or $100 for their time and an opportunity to do business with you. Consider it the cost of education.
Separate the costs as much as possible. Kitchen, bathroom, windows, floors, roof, etc. You'll start to see patterns, and then you'll go into a house and think, well, this kitchen is 25% bigger than the others I got bids on so it will likely ballpark around 25% more.
I don't have time to go through cost estimates in detail. I look at a house, try ballpark the rehab within say 5% of the ARV (so, $5K for a $100K, $10K for a $200K house, etc), ensure that there is enough cushion in case something goes wrong, and make a decision on the spot.
Originally posted by @Charlie MacPherson:
@Alexander Wardell Wholesalers generally don't do repairs. They get a property under contract and then try to assign that contract with their markup attached - which, by the way, is illegal in Massachusetts unless you close on the property and then re-sell it.
It sounds like you're talking about more of a fix & flip scenario, which is perfectly legal and in my opinion a good way to make relatively short term money. By short term, I mean months, not weeks.
Thanks for the response Charlie, Can you please elaborate on the illegal part you mentioned above?
@Javier Medina Sure. Here in MA, you need to be licensed to sell real estate in order to market a property that you don't already own. The statutes are found here:
https://malegislature.gov/Laws/GeneralLaws/PartI/T...
The law is very clear that even trying to assign a contract is covered as a license-required activity. Here's a partial excerpt of the definition of a Real Estate Broker - which requires being licensed:
"...buys or offers to buy, sells or offers to sell or otherwise deals in options on real estate, or advertises or holds himself out as engaged in the business of selling, exchanging, purchasing, renting or leasing real estate, or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate."
Laws vary by state, so yours may differ.
Of course, the other problem that some wholesalers run into is that they get a home under a contract to purchase without having the ability (funds) or the intent to fulfill their part of the contract (actually closing on the property). This is the textbook definition of "Fraud in the Inducement".
https://legal-dictionary.thefreedictionary.com/fra...
Want to do it right? Listen to BP Podcast #231 with @Brett Snodgrass.
I think the areas you mentioned that would be worthwhile (Plymouth, Bourne, Cape cod) would cost you a lot to fix and flip. The only way to get a good deal in those areas is to buy something that needs extensive repair, 60k plus in repairs.
You can find good deals in south Plymouth, but these houses are out in the middle of nowhere, and I would expect them to be a hard sell. Bourne inventory is really low and youd have a hard time finding something that makes sense, there is one house on county rd that I would fix up if I had the money. I think your best option would be down cape (yarmouth, dennis, and beyond). When I was looking at fixer uppers I saw some good deals in Orleans and Truro, but I didn't have the required capital to fix/flip. I had to figure in 20% down payment, plus whatever the renovation costs would be. It was well over my budget. Contractors on cape cod and surrounding areas are not cheap.
@ I did not know there are any restrictions against assigning contracts. If doing an assignment contract isn’t an option are there any issues with trying to do a double close? As of right now I do not want to jump right into fix n flips that is why wholesaling is so attractive because I can do the leg work, find the off-market properties and negotiate with the owner directly. That was main reason I asked about repair cost since I will have to calculate that into the numbers since I was planning on assigning the contract to an actual fix n flip buyer.
So basically, you are saying its illegal for an unlicensed newbie like myself to try contract wholesaling?
@ Thanks for your reply! Yes, I do know a contractor, but I would also consider paying other local contractors a few bucks for their time worth it. I like that 5% of the ARV you mentioned. It makes sense for most properties. Obviously, there are properties that will need more work, and this is only if I can get a professional to look at the property. It's true what everyone says, getting the first deal is scary! I just need to jump in with both feet!
@Alexander Wardell It's not me saying it's illegal - it's MA law. The part I quoted is pretty cut and dried.
That said, people do it every day. It will all be just fine - until it's not. When some family member finds out that Grandma sold her house at a 50% discount to a wholesaler, that's where the trouble starts.
Wholesaling it the subject of so many guru courses, workshops and books that it's jaw dropping. I have had dozens of new wholesalers call me to ask how to get started and insisting it's completely legal because the course they just dropped $3,500 on told them so.
It is legal in some states. I think TX is one. But I can tell you for certain that it isn't in MA.
The legal way to do it is to find the distressed property and close on it. Then it's yours and you can re-market it to your heart's content. No Realtor necessary either.
@Charlie MacPherson This is all very helpful information. Is it safe to assume that a double close would require a transaction loan and 2x the typical costs i.e. lawyer, Registry of Deeds, wiring funds, etc? I suppose the crux of what I'm wondering is how much more complex and costly a double close is relative to an assigned contract in Massachusetts? I see you are licensed, so this may not be your bread and butter, but you seem like you know the subject matter.
@Alex Whitmore Yes, there are approximately double expenses. You can most likely find an attorney to discount his fees on a double-close though.
Unless otherwise negotiated, the seller pays for tax stamps ($4.56 per thousand), smoke/CO, etc.
Again, I recommend BP episode 231. Brett Snodgrass did a great job of explaining this.
@Charlie MacPherson Thank you, I'll be sure to check it out.
@Alexander Wardell it's good to have a contractor or 3 on your team, but a simple way is to reverse engineer and track what fixer-uppers are selling and reselling for for and what profit rehabbers like to make. Example, see a home bought by a rehabber for $100k, sold $200k 3-6months later and you know they like to make 30-50k/flip. Use MAO formula with a tweak as a baseline. Instead of subtracting repairs, subtract the original purchase price. (ARV x 70%) - Price, so ($200k x 70%) - 100k = $40k. That $40k is an approximate number for the repairs and the remaining 30% is profit and holding costs ($60k-recording fees, attorney fees, tax stamps,utilities,interests,etc.).
In reference to assigning, @Charlie MacPherson is correct. You can not market to sell real estate you do not own, but you can market and sell your rights in a contract. It comes down to disclosure and intent. If you plan to assign your rights in a contract, that's all you can market. You can not show pictures of the property, because the property is not what you are selling. You are selling your EQUITABLE INTEREST in a contract to purchase said property. Talk to the attorneys of the big-time rehabbers in the state and/or at the REIAs they will say the same.
Disclosure: I AM NOT AN ATTORNEY NOR DO I PLAY ONE ON TV. I AM NOT GIVING LEGAL ADVICE AND YOU SHOULD DO YOUR OWN RESEARCH AND SEEK YOUR OWN LEGAL COUNSEL
@Al Murray @Alexander Wardell I suggest reading MA law again.
https://malegislature.gov/Laws/GeneralLaws/PartI/T...
In MA, you cannot even market your "equitable interest" in a property that you don't own. The law is crystal clear on that.
Of course, the lawyers for rehabbers will tell you that what their clients do is legal because they are closing on the property, fixing it and re-selling it. Once you own the property, you're free to market it.
If you want to rely on what random people at a local REIA tell you, rather than reading the plain meaning of the law, I'd suggest rethinking that position.
From the definition of a real estate broker: "...or assists or directs in the procuring of prospects or the negotiation or completion of any agreement or transaction which results or is intended to result in the sale, exchange, purchase, leasing or renting of any real estate."
Seriously, listen to BP episode 231. It's gold.
@Charlie MacPherson the key phrase is "Real Estate". When assigning, your equitable interest it's not in the real estate, but the contract. I agree, don't take random advice from people at blogs, REIA's or podcasts. I strongly suggest everyone take the time to speak with a few well versed real estate and contract law attorneys.