All Forum Posts by: John Chapman

@Ricardo Rosales, Assignment wasn't an option because the seller did not want to do it.  I think you make an excellent point about walking away from problem sellers, particularly if it's a wholesale deal.  There were warning signs from the beginning that this was going to be a problem seller, and I ignored the signs simply out of laziness.  (Usually, it's greed that makes me ignore the signs :) )  I think too often we get excited about deals and numbers and ignore the reality of what it takes to close them, cooperation by all parties.

I've got a couple in that zip, and my personal opinion is that it's not a good deal.  Here's my overall take.  First, it's m'eh area overall.  Second, with repairs you are basically at retail.  Also, that HVAC will die on you in the next 1-3 years.  Third, I hate 2 bedrooms and will only buy them if I can add a 3 bedroom, at which point you can really get a much better rent. Fourth, with cap ex and the age of the house, you really need to be getting at least a $1000 month (water heater, for example, costs the same for a $900/month house as a $1000/month house.)

Cut your losses and sell it now. I've actually been in a similar situation when I was trying to sell a rental around this time of year. (I decided I was going to take a loss on it for a number of reasons.) I got it ready to sell and then, fearing a winter market slowdown, rented it for 6 months. Complete waste of time. The make ready offset any benefits of renting. Ended up losing the same amount of money and merely dragged out the process. I even had decent financing. (If you have HML, then it's a no brainer.)

There is no doubt that things slow down here in the winter, but inventory still does move.  It's not like the north where everything shuts down.  The only reason to rent is if you see massive appreciation coming your way, which is pretty speculative in my opinion. 

That makes sense.  Wasn't sure if you had run the numbers and concluded that, despite economic conditions, home purchases don't make sense here.  I can see that type of argument given property taxes and structural issues, along with the run up in prices we've had.  Thanks for answering.

@Joshua Drummond, I'm in your area and I'm curious why you are not buying here.  Any particular reason? 

I'll give you my thought process about why I held out on getting my license until this year.   These are probably unique to me, so take them with a grain of salt.

• I really didn't want to have to disclose my status as an agent in my marketing or transactions.   (I did direct mail for buy and hold for myself, so I really wasn't looking to broker any deals.) It was my perception that it's hard enough to close a real estate transaction without being an agent and that sellers would have a prejudice against me for being an agent and think I was only contacting them to list their houses. Having spoken with enough investors who hold licenses, I now believe this perception is incorrect.
• I didn't want to subject myself to another regulatory authority that could annoy me and provide a forum for baseless complaints.  Any person who gets angry with you can conceivably file a grievance.  I don't think this is much of a concern if you're behaving ethically, but it's still a possibility.
• I didn't want to subject myself to the realtor community or a broker.  This one's a little more legit.   Realtors can, in my experience, be catty and difficult.  They can complain to your broker, particularly if they perceive you as trying to steal listings or clients (e.g. accidentally mailing to a listed property)  As a salesperson, you will be under a broker who is responsible for your actions.  Expect oversight, rules, and procedures that are designed to keep you out of trouble.  As a newer investor, they are probably for your own good.  For a more experienced one, they can be perceived as a bit of a hindrance.  (What can I say, I like doing things my way.)  Overall, there's been a slight annoyance factor but not enough to regret getting my license.

Overall, I don't regret getting my license this year and feel kind  of dumb for having waited this long.

I've got to agree with @John Thedford.  It strikes me as pretty solid and is how I've seen it done correctly in the past.

@Benjamin Barredo you're right, it is kind of what a realtor does.  That's one of the problems with wholesaling (with the way I described it above) is that you're now bumping up to (and sometimes crossing into) the realm of unlicensed brokerage activity, which is a big no-no with most state regulatory agencies.  You even had a freudian slip when you refer to it as a wholesaler planning "to broker a deal." 

My example above was kind of silly and made only to point out how hard it would be for most wholesalers to close a deal if they were honest about what they were doing.  I've done a lot of direct marketing and truly motivated sellers usually just want the property gone.  They don't want a quasi-realtor who is going to shop the property to the public at large.  (I am not talking about experienced investors wholesaling to other experienced investors with whom they have connections.)  You are right that if (1) everything is disclosed and (2) you haven't crossed over into engaging in unlicensed activity, then there is nothing wrong with wholesaling  Buying in your own name and then immediately reselling or buying (with the ability to close) and assigning is different.  

BTW, almost everything I'm talking about can be avoided with a license, and I commend your decision to get one.  It just makes things so much easier.

Again, this is such a hot button issue, I feel compelled to qualify that there are legit ones out there  being completely forthright, but they are the exception, not the rule.  

I think the 80/20 rule applies particularly well to cleaning house with tenants.  80% of your tenant problems (slow pays, whining, etc.) come from 20% of your tenants.  I got a little lazy over the last few years and let some of these problem tenants slide, particularly ones that had been with me a while.  

This year, I got tough and cleaned house (non-renewals, terminations of leases, etc.)  It was a decent amount of work with make ready, but already the results are great.  Cash flow is up and stress is down.

@Benjamin Barredo, I did not say there was anything "unethical" about wholesaling without the inability to close, when it's done properly.  As long as you are very upfront about your lack of funds, then I don't think it's a problem.  In my experience, however, you're going to have a very difficult time.

Seller:  "I've got to get rid of this house.  It's killing me for whatever  xyz reason.  I know about realtors but I just don't want to go through the process.  I just want this thing gone."

Wholesaler:  "Great!  I'm your  guy.  I'm going to put your house under contract, meaning I'm going to enter into a contract to buy the home.  I don't actually have the money to buy your home, but don't worry. I'm going to go out and try to find someone who will  buy it.  I'll put ads on Craigslist and use bandit signs.  If it all doesn't work out in 30-60 days, I'll just back out of the contract.  How does that sound?"

Obviously, this is a little bit of hyperbole, but that's literally what a lot of people are doing.  Let me know how that works out explaining to a buyer you are going to buy their home but you don't have the money to do so. 

And there is a big difference between a realtor and a wholesaler.  The realtor isn't entering into a contract to buy the  home.  The realtor is just entering into an agreement to try to sell the home for the seller for  a fee.

Yes, wholesaling can be done properly and ethically.  But you've got to be able to close.  I suspect that people like @Ned Carey, who has a very good reputation, have the ability to close (one way or the other) on every deal he puts under contract.