BiggerPockets

So i have a question about working with rehabbers. Im looking to wholesale REO's to rehabbers via simotaneous and double closing. They will fund my A-B transaction and the B-C. BUT WHERES MY PROFIT?

if they want 70% ARV does my profit have to be within that 70%? And what about closing costs? I cant find a thread on here that talks about this.

I contacted a rehabber he said he will buy what i can get at 70% ARV. So if it was $100K ARV then $70K - 10K repairs = $60K is what he would buy from me at?

So then would i have to have it under contract at $50K to make $10K? or do they pay you on TOP of the 70% and pay closing costs too? For this example if they paid on top but I had it under contract at $60K, it would be $70K + my profit + closing costs= say $85K so they have a 15% profit potential? That would show they dont get that 30% profit margin, thats to pay all othe stuff and just incase repairs cost more right?

What you are looking for is in the wholesaling forum.

Your first example is correct: if you have a property with ARV of 100K, the repairs are 10K, and you want to make a 10K fee - you would have to get it under contract for 50K.

Since you are dealing with REOs and can't assign the contracts, you would have to write your end contract with how you want the closing costs divided, etc.

I think you are over-thinking it just a tad. If an end buyer agrees to buy you property, you collect a deposit and get a contract signed. The contract would be for the 60K and you would be paid your 10K at closing. Your fee would be reduced if you are prorating the taxes, paying your attorney, etc.

If the repair costs are higher - that is not your issue. Your buyer needs to do their due diligence about the property. But, keep in mind that you are setting your price based on your estimate or your contractors estimate and they should be very close in the end.

The basic formula for coming up with your offer when wholesaling to rehabbers would be ARV * .70 -repairs - your gross profit (assignment fee or in a double closing the difference in what you're selling it for and what you're buying it for minus any closing costs).

That example is all OK except for the rehabber profit. Lets assume they use hard money at 4 points and 15%, it takes six months between their purchase and their sale, and they have to give 3% is seller concessions. Their purchase price from you is $86,500. Their hard money loan amount is $101,500

Their purchase closing costs 2%: $1,750
Points: $4,100
Interest: $7,600
Insurance: $1000 (empty house policy for six months)
Taxes: $900
Utilities: $600
Sale closing costs: $2,900
Commissions: $8,700
Concessions: $4,350

Total costs: $31,900

Sales price: $145,000
Less costs: $113,100
Loan payoff: $101,500
Profit: $11,600

That 2% I'm allocating for the rehabber's closing costs when they buy are the normal closing costs. They don't include the ones the seller typically pays. If you shove those onto the rehabber, their profit will be correspondingly less.

There's nothing wrong with you taking a large cut like this, if you have rehabbers who will buy at 70% like this, and you can get the property cheap enough. Just don't think the rehabber's making a ton of money.

OK so i have a deal im working on. Me an another wholesaler are trying to get ahold of the title company and figure out how the pay would work in different scenarios.

I emailed about 5 of my buyers on the deal because some want places at 70-80%ARV some at 10-15% profit and other wont touch unless there is $20K profit. Im seeing if anyone is interested. Funny because the numbers are similar to our example. I have been looking at your numbers Jon and im clear on it alot more but let me give you what i sent my wholesalers to see if the numbers were ok for them. They dont know yet i can get it at $75K but that doesnt leave me a profit at 70% ARV.

$75 PP---$143K lower side of ARV and $25K in repairs. So if they were 70% ARV that leaves me out cause i would have to give it to them at my price. NOW alot of these guys are using their own money and no HML so there will be no intrest. I even put the closing costs at 5% so they can close on this end and on the back end when they rehab and sell. Now they all like to do FSBO and dont use an agent so they wont have that commission to pay unless they change their minds. Im saying they do holding costs for 6 months and these are the numbers i came up with. Let me know if this is what it would come out to be.

Variables Fair Market Value: $143,000
Profit Required: 15%
Cost of Repairs: $25,000
Annual Property Tax: $1,000
Annual Insurance: $800
Annual Utilities: $1800
Cost of Money: 0%
Closing Costs: 5%

THIS LEAVES THE FOLLOWING AFTER 6 Mo.

Profit: $21,450
Repairs: $25,000
Closing costs: $ 7,150
Holding Costs: $1,800
interest: $0
Commission: $0
Concession: ??

Totals $55,400

Sell price $143,000 - $55,400 = offer price of $87, 600

Now that included closing for both transactions. So basically this would mean if they were looking for a 15% profit or $20K they could pay up to this amount right? So if one of them bites at this and does not list it with an agent and sell they should be ok? That would mean they really get more than a 15% ROI not much more but more.

ok as for the return on their own money, if i was to use that formula i show you aboue and put a percentage in there and say it came to like $5,000. If it was their own money, and were smart, from the scenario i put above they would calculate that INTO their expenses and offer me $82,000. They could even do reserve for replacement costs too just incase they had to rent the place out because they couldnt sell to make sure they are covered ALL the way around?

So if i did that work and calculated it up like that, then they would probably really appreciate it and REALLy love working with me probably right?

Interesting! Well i lost this deal so far anyway because the lady that was suppose to buy it decided to take the assignment of contract before i could get anything under contract. I didnt know what kind of close i was going to do was all. He has a partner that splits profit 50/50 on a JV contract. i want to do a JV contract with them of some sort on the next deal so i can make it easier instead of this double assignment, double close crap on these types of deals. The only JV contract i saw had some 50/50 split thing in it too. Cant i just specify an amount they would pay me if i brought the buyer in? The title company said they can pay me a finders fee of some sort and pay me out through a 10-99 but i want to make sure i have it under contract BEFORE closing so that way i dont show up expecting the title company to work with me and im on no paper work at all. How would you do it?

David,

I couldn't agree with you more. Unless you grab properties before they hit the MLS you're going to be doing some serious digging before you hit paydirt in my market.