Process of buying from a wholesaler

[Max Biggar]

Hello BP!

I have a question about purchasing a property from a wholesaler and the due diligence needed. I have located a property in Florida where the numbers make sense based on my estimations... not his. This will be a rehab buy and hold.

Triplex - cost $55k cash

rehab - $80k-$100K (my estimation based on experience)

ARV ~$225k

Total Rent: $2050/mo

I plan to purchase the property with cash and then finance the rehab.

Questions: Since I am buying this cash from a wholesaler, should I be searching for any liens prior to closing or is that what a closing is for? 

What is the typical wholesale purchase process for cash. Is there still earnest money agreed upon and if the property is not free and clear would I get it back? I'm guessing this can all be negotiated in the purchase agreement but just wanted to check what standard practice was. Any other due diligence needed on my part? 

Thanks BP!

[John Thedford]

BEFORE you deal with any unlicensed broker consider these ideas:

1. Always require WRITTEN comps that can be substantiated

2. Always require WRITTEN bids from LICENSED contractors

3, Always require WRITTEN comps to substantiate ARV

4. NEVER pay a non-refundable fee

5. Always correspond via email so there is written record to bring suit in the event of misrepresentation.

6. Always demand to see a copy of their contract.

Remember, these are middlemen trying to play RE agent without a license. Make sure they provide GOOD comps. Make sure if they are representing an ARV value make them provide ARV comps. If they make claims about rehab costs, make them provide WRITTEN bids from contractors. They are brokering real estate so make them PROVIDE good quality information like you could get from a licensed broker. Many of these unlicensed brokers simply make up figures that sound good but cannot back them up.

Unlicensed brokers generally have no insurance. From personal experience most just pull their ARV out of thin air. Lets see: claim it costs x and it will sell for y. If someone uses an agent, an agent won't provide or should NOT provide the BS an unlicensed broker does. They should not or do not provide rehab figures (to protect themselves). They should tell a prospective buyer to get their own bids. They can provide comps in some situations on an updated unit vs an original unit. Agents have something to lose, can be fined, and have their license suspended or revoked. Unlicensed brokers, acting as fringe operators skirting the laws have nothing to lose. They are acting as an agent without the laws, ethics requirements, education, and insurance that are vital IMO.