First time BRRRR, contract assignment

[Paul Chae]

Hello everyone

I am an nyc resident, looking to buy an investment property in South Jersey for the first time for BRRRR.

I have a lead in that area, I got to know him through other guy on BP. He contacted me and offered contract assignment, which I was not aware of its meaning. I read through online and have some basic idea now. But to be honest, there are too many things going over my head, since it is my first deal ever and I don't want to rush and screw it up. I plan to take time and read every piece of paper I am signing.

So the situation is, the property is already inspected and appraised and everything, according to what he says, only thing left for me to do is sign the papers, wire the money to the closing attorney(contract assignment). I have not yet seen the property yet, I think I will have the time to read all the paperwork, city inspection, disclosure form, etc. The numbers add up, even with very conservative numbers plugged in.

My current concerns are

1. lenders

for BRRRR, I wonder if there's local lenders who is willing to do LTV 75% without seasoning periods for a newbie investor. Also, I am a nurse who's worked in a hospital for a while, but I am transitioning to a home visiting care within a few days. I hope it wouldn't damage the chance of getting the loan, since I am gonna get paid less for the new job.

2. contractor

I can't get a referral on contractors, so I will have to rely on online review and search. What I am gonna do is call up a few contractors and show them photos of the house(according to the agent, house needs about 10-12k of work) and make sure they stick to the initial schedule.

Could you give me some advice on my situation? Such as what to do, what not to do, something I might be missing.. etc

As always, I appreciate for all the people who're reading this and advices and knowledge. Thank you all and have a blessed day!

[Steve K.]

Originally posted by @Paul Chae:

Hello everyone

I am an nyc resident, looking to buy an investment property in South Jersey for the first time for BRRRR.

I have a lead in that area, I got to know him through other guy on BP. He contacted me and offered contract assignment, which I was not aware of its meaning. I read through online and have some basic idea now. But to be honest, there are too many things going over my head, since it is my first deal ever and I don't want to rush and screw it up. I plan to take time and read every piece of paper I am signing.

So the situation is, the property is already inspected and appraised and everything, according to what he says, only thing left for me to do is sign the papers, wire the money to the closing attorney(contract assignment). I have not yet seen the property yet, I think I will have the time to read all the paperwork, city inspection, disclosure form, etc. The numbers add up, even with very conservative numbers plugged in.

My current concerns are

1. lenders

for BRRRR, I wonder if there's local lenders who is willing to do LTV 75% without seasoning periods for a newbie investor. Also, I am a nurse who's worked in a hospital for a while, but I am transitioning to a home visiting care within a few days. I hope it wouldn't damage the chance of getting the loan, since I am gonna get paid less for the new job.

2. contractor

I can't get a referral on contractors, so I will have to rely on online review and search. What I am gonna do is call up a few contractors and show them photos of the house(according to the agent, house needs about 10-12k of work) and make sure they stick to the initial schedule.

Could you give me some advice on my situation? Such as what to do, what not to do, something I might be missing.. etc

As always, I appreciate for all the people who're reading this and advices and knowledge. Thank you all and have a blessed day!

Lots of red flags here. Maybe even all the red flags. The property is already inspected and appraised and all you have to do is sign the papers and wire the money? NO! That sounds exactly like a scam. 

You need to get your own inspection, your own appraisal, your own contractors to give you rehab estimates, and line up your own PM in case this guy is full of sh_t. 

From what you said it sounds like "your" agent is also the selling agent/wholesaler? If that's the case, he is not your agent. The way a typical transaction works is the listing agent works for the seller and the buyer has a local agent representing them (unlikely with this price point and with it being a wholesale deal, but in a normal above-board transaction I mean). There's a good reason that's the way it is done: because "buyers are liars and sellers are worse". Keep that top of mind.

Get down there yourself and set eyeballs on it personally before signing anything or paying any money or taking any further action. Do your own due diligence. Verify this person you're dealing with, the selling agent/wholesaler/purchaser of the other half is who they say they are. Verify everything they say with a third party that has no interest in the deal. Remember this persons interest is to sell you the property/assign you the contract. I would even start by looking up their license number on the state website to search for complaints with the real estate commission. Verify every single thing they've told you because if they represent the seller, are assigning you the contract, etc. then they have a conflict of interest and are not looking out for your best interest. For example I'd be very surprised if all it needs is 10-12k worth of work so that would sound alarm bells for me right there. You mentioned a kitchen and bath remodel at minimum and both of those things could easily cost more than that amount by themselves, especially considering you'll be using a contractor you don't have any history with.   

At the very least, call a few local agents and see if they can tell you about the property/street/block and pull some comps to provide a comparative market analysis (CMA, shows what the fair market value is based on comparable recently sold properties), even if you have to pay them for their time. It might not be possible to find many comps on a property like this due to its condition and price point, but I'm sure those will be valuable conversations.

Perhaps most importantly, talk to some local PM's who have no interest in the deal and get their thoughts on how this property will perform over time. See if they would be willing to manage it for you (it can be very hard to even find a PM willing to manage properties in certain areas). 

You need to be digging into everything you can find out about the property. $45k in Trenton is a challenging asset class to be getting involved with. Reverse engineer this deal for a second: the wholesaler is assigning the contract to you at $45k. You know they're making a cut, what do you think their assignment fee is? 5-10-15-20k? So you're talking about a property, in Trenton NJ, worth maybe $20-40k. Proceed with extreme caution.