Too Good To Be True?

Question

Hi all! I am working on my first deal going through a local wholesaler company. They sent me a few deals and I found one I like the numbers on, and they have everything set up for me. They have connects for a lender, title company, and contactor crew. This is the summary info he sent me:

NEW VACANT OFF MARKET PROPERTY!! Tax assessed at 212k.

This is a really clean house off Fair Ave and 37 South. This house is solid for a flip or rental. The roof is in really good condition and the hvac works very well. We are only looking to service the hvac. We are set up as a 3/1 right now looking to convert to a 3/2, we have added additional funds for the frame out and adding in a 2nd bathroom. If you're looking to rent this property out, you will likely not need to do the addition to get great rents for this area. Renovation consists of updating the kitchen and bathroom with the installation of 1 bathroom. Buyer can close off one bedroom off the kitchen and make a huge walk-in closet with a bathroom in it to create a master suite. Also open the wall from the living room going into the kitchen and close off the sitting room to create the 3rd bedroom. No wall moves are necessary. The foundation feels good but the house is old so there are signs of settling in the house. We have a verbal of 3k on this house for foundation.
3/2 with conversion 1492 Sqft ARV 273K REHAB 32K PRICE 178.9K
RENTS SUPPORT 1900 PER MONTH

I haven't been able to walk the house yet due to my busy schedule, but I did get pics/vids and did a video call with the rep at the property. They said the crew can get it flipped in 4 weeks and I'm already pre-approved so I just need to provide the down payment to close at 170k. Am I in a good position or is this too good to be legit?

This is a slideshow I made for all the info too lol

https://docs.google.com/presentation/d/1kFxm9M8fNBoYtI93_Y_v...

Greg Scott · Answer

My warning bells are going off.

Sometimes flippers build a team like this so they can charge you maximum price and an easy transaction for them.  Read through this post.... https://www.biggerpockets.com/forums/48/topics/1151437-makin...

I would not do that deal unless I had my own contractor assess the repair cost.  I would also want my own lender because the lender will want to ensure there is a correct appraisal.

Nicholas L. · Answer

@Liz Lynn

just curious, this seems like a big swing for a first deal.  do you have the capital to buy and hold something like this and the time to manage the rehab?  i don't know anything about this market but there's no way the rehab is 32K.

with a wholesale deal you're assuming all the risk.  their opinions, valuations, quotes, etc. are irrelevant.

Jim Reynante · Answer

I can offer you some advice through my own personal experience and mistakes. The wholesaler can offer their connections, but you really want YOUR team involved because they are working for YOU and watching out for YOU.

Be careful when a wholesaler becomes too helpful and offers "a convenient turnkey solution".

Corby Goade · Answer

No disagreements with any of the posts above, but a couple things to add. If this TRULY is a great deal, it would sell itself. The wholesaler would not be catering to your schedule and doing video walk throughs for you. Good wholesale deals are gone in a day, sight unseen.

Second- these numbers are D class numbers, meaning as a rental, you are very likely going to be dealing with rough tenants, high turnovers, high turnover costs and high vacancy. Contrary to popular belief, cheaper properties with high rent to purchase rations are usually really tough deals to make money on and not really great starter deals.

In any occasion, I applaud you asking for some advice here and wish you the best of luck!

Nicholas L. · Answer

@Liz Lynn the numbers just seem thin if the rehab number is off.  what are you calculating as the margin after all commissions, closing costs, and taxes?  remember that you'll spend 8-10% of the ARV to sell, you'll spend closing costs to buy, you'll have holding costs to service the loan... if the rehab ends up being 50-60K your margin on this is basically 0.

Liz Lynn · Answer

I was thinking so too, but I do have the funds based on the numbers I was told and I'm not sure if there's any major difference in the process for a larger project. I'm thinking either way we'll flip it so if I have the funds, why not? Is that not true? I am waiting to get quotes from other contractors to compare because I am suspicious of just going off what they give me. Thank you for your input!

Liz Lynn · Answer

Love this! Thank you!

Richard Dunlop · Answer

Too much for a first

Jared W Smith · Answer

Definite red flags as others mentioned. As an Architect, I see a few other things others haven't mentioned. First is the timeline- 4 weeks will never truly be 4 weeks. They will tell you this but doing a kitchen and two bathrooms (one completely new) typically takes more time than that to do correctly. Also, are permits required for this work? Adding the bathroom need to be recorded for property certificate of occupancy? You don't want problems in the future with the Building Dept./Jurisdiction. The mention of the foundations "feels good" is just odd wording. Settling occurs but at certain points specific repairs/replacements are necessary. As a novice in this scope, I would have a person on your side like an Architect or Owner's Rep or as others stated, hiring your own GC. Having your own lender and attorney is a must. Trust but verify everything.  Hope that helps @Liz Lynn.

-Jared W. Smith, RA - Principal Architect at Architect Owl PLLC (Licensed in NY & CT)

Jim Reynante · Answer

Of course the Bigger Pockets community is the first place I would look to for recommendations on team members. Back when I started, here are the steps I took to build my "Core 4" team:

1 - I first connected with a lender that got me pre-approved. I told them my budget, my strategy (BRRRR, Fix & Flip, STR, LTR), and the area I was focused on.

2 - My lender was also an investor and familiar with the area, so I asked them for recommendations for agents, property managers and contractors/handyman.

3 - I interviewed everyone and I also asked them if they had recommendations.

4 - All of the interviews are time-consuming, but it is all part of the process.

Hope this helps... Good Luck to you!

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