I am an investor and the owner of a rehabbed TH in Baltimore. I had an open house on Sunday to rent it, and among applicants, a wholesaler offered to buy the house. I gave him a number without much thought, and he accepted. He was with his client/buyer who liked the house.
Now I have a contract for $135K sale price with the buyer (not the wholesaler) and an amendment for the assignment fee stipulating that I cannot have more than $99K (the price I asked), and that the difference after I pay 6% origination fee and all the closing costs will go into the assignment LLC . I am a bit worried about the legality of this transaction. The loan is FHA, and the lender is the wholesaler himself. The realtor and the appraiser are part of the investors team. I know that the property won’t appraise for $135K otherwise I would sell it for more. The comps are around $115K.
My questions:
I talked to my tax accountant who said that I will pay capital gain taxes on the the entire sales price, not just on what I receive. The realtor & wholeseller are saying this is not true. IF you have any experience with this, please help.
Should I consult a lawyer and can you recommend a good REI lawyer in Balto?
I didn’t sign the contract yet. Should I renegotiate the contract to include taxes, or should I walk away?
Is there any danger I might get in trouble due to some illegalities?
Thank you for any advice or comments. I need to make a decision today!
Sam
I am no expert but the whole thing sounds fishy. The Wholesaler is the lender, and the realtor and appraiser are all on the same team, and the buyer agrees to pay 20K over comp prices?
See if the wholesaler will buy it for the price he agreed with you, he can assign it to the LLC and sell it to the end buyer for $135K. If it’s a good rental, keep it and rent it out.
Thank you both for the advice. I talked to a REI attorney and a closing company. They said that the deal is legal as long as the numbers are the same on the HUD1, indicating that the underwriter is aware of the assignment fee.
I signed the contract conditional on reviewing the HUD before final approval.
As long as ALL the numbers show up on the HUD statement, then you should be fine. Their “team” may have problems down the road, but they won’t be yours.
I’m not an accountant, but if I were you, I’d suggest finding a better tax professional.
You are taxed on your profits, not the amount of the sale price. Since (if it’s included on the HUD) it would show a $35K fee to this wholesaler, that would not be profit but rather a tax expense/write-off.
Thank you Raj. You are right. Another accountant confirmed that most of the expenses related to the real estate sale will be deducted from the taxes and only the net sales price is consdered income.
Hi Steph,
Yes, these wholesalers, (or rather bird dogs?) have their own title company, their own real estate attorney, their own realtors, their own lenders, their own appraisers.
That what spooked me about them. IT’s great to have your own power team as long as everybody is honest and plays by the rules.
The wholesaler is trying to change the contract on me.
He faxed me a new contract to sign with the lame explanation that my signature was not visible after I faxed back the original contract.
I compared the 2 contracts, and sure enough, the amendments were changed to their favor, and in the contract, I am presented as a sales agent instead of just sale by owner. Not sure why. I refused to sign the new contract.
I would like to get out of this deal since I know now that I am not dealing with honest people. However, I don’t know how, particularly since I signed I a pre-occupancy lease and they already occupied the property.
Meanwhile, I received an unsollicited offer for the house ofr $131K cash!
Unfortunately, I cannot take it since I already signed a contract.
Please help me find a good real estate attorney in Baltimore.
You might try finding a good Realtor as well, sambeni.
If someone is offering you $131K cash for the property, then it may be worth quite a bit more than the $135K you didn’t think you could get. Just a thought.
Yes, Unfortunately, I accepted the first month & deposit for the lease, and the sales contract with pre-occupancy lease was signed by the buyer and me, the seller. I am waiting until next week when they are supposed to give me the loan approval letter. If not, then I can cancel the sale but I don’t know if I can cancel the lease.
I welcome any suggestions to get out of this deal.
Thanks,
Sam
Wow what a mess. The lease is an important detail that you left out in the initial question. Who is the lease with? Who is your contrat with? What do the contracts say? Yes this sounds fishy. It can all be legitimate but there are certainly red flags.
I am in the baltimore area. I would be happy to help. I don’t check here that often but you are welcome to contact me directly