How Much Money Should you Put Down on a Wholesale or Sub2 Deal?

If you want to last long and make a lot of money in this business you have to develop personal “numbers” that you won’t deviate from.

For example, when doing a subject-to or lease option deal, I won’t touch it unless I’ll make $30,000 or more on the back end.

Of course, when I first started out I would take any deal I could get. But once you become busy, you have to realize the value of your time and make sure you get paid what you’re worth.

Now let me share with you what is perhaps the most important number of all…

And that’s how much you’re willing to invest in a particular deal. If it’s a wholesale deal, the most I ever put up is a $10 deposit. I’ve got my scripts down cold if anyone objects to this amount and I’ve never lost a deal because I only put $10 down.

However, since the majority of deals that I do are subject-to’s, let me focus on this strategy. When it comes to sub-2’s the most I will ever put down is $5,000. Why $5,000?

Well, first of all, because if you want to last long in this business you can’t be putting a ton of money into deals. I think that putting more than this means you’re not a good negotiator or else you’re picking up crappy deals.

I do the majority of my sub-2 deals by putting zero money down, but occasionally I’ll give the sellers some cash or pay for a moving truck or the first months rent on an apartment.

But once again, I always stick to the $5,000 rule.

The way I figure it, putting cash down on a deal is slippery slope that you probably don’t want to head down. First you’re putting $6,000… then $7,000… then who knows, maybe $15,000 on a deal that isn’t really that good.

In other words, you went broke because you weren’t disciplined enough to learn how to do this business properly and put down as little money as possible.

Now, the $5,000 rule is my personal rule, but find what’s right for you. Also, I should probably tell you that the $5,000 rules takes into an account the amount of equity a seller has in their house. Obviously, I’m not going to give someone $5,000 on a deal that would make no money. So once you’ve decided on a number, stick to it, because it will make you a better investor in the long run (and also a wealthier one).

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.