Wholesale Transactions: How does everyone get paid?

Question

Hello all,

I'm just getting started out with Real Estate Investing. I have a question about how transactions work for wholesaling. I understand the process up until putting the house under contract and assigning contracts, but when you find the buyer how do the two party's (Me and the seller) receive their payments. Are there two checks written or is there just one check written? If there is just one check, how are the payments separated so everyone receives their payments.

Let me know if there needs to be more clarification.

Thank you

Shawn Ackerman · Answer

@Ryan Marrs Congrats on getting started in your REI career.  And welcome to BP.  Here's an example with plain numbers.

Purchase Price(Your price with seller) - 90K

Assignment price(Your price with the end buyer) - 100K

Your buyer brings 100K to the closing table.  prorated costs for taxes, utilities, rents etc will be adjusted by title Co. and deducted from sellers proceeds from buyer.  granted the title is clear of judgments and or liens exceeding the purchase price.

Example: Let's say the buyer has to bring 95K to closing because seller owes back taxes 2K, prorated utilities 1K and pro rated taxes 3K.

Seller walks away with 85K

Wholesaler walks away with 10K

Your contract should stipulate who pays closing costs either seller or buyer 100% or split equally.  This will not impact your fee of 10K but will impact the person paying the closing costs.

Note:  A good wholesale deal offers the end buyer an equity position of 25-35% thus if your end buyer is buying the property at 100K then the value should be in the ball park of $134K - $155K.  You may be able to get away with a smaller equity position every buyer is different.

Lastly, If title Co. finds liens and or judgement against seller/property above the purchase pirce the seller will have to bring the difference to closing.  Situations like this usually kills deals as sellers typically don't have any funds to bring to closing.

Hope this helps you along the way.  Always remember to persist and you will WIN!!!

Shawn Ackerman · Answer

@Ryan Marrs tour welcome. I just realized that the numbers are off by $1k. Sorry about that but you should get what I'm saying. If you have any other questions feel free to PM and I'd be happy to work with you.

Ryan Marrs · Answer

@Shawn Ackerman Thanks, Shawn for the in depth post about a situation like this. It is greatly appreciated.

Ryan Marrs · Answer

@Jeff Wallenius Gotcha, Thank you for clarifying!

Jeff Wallenius · Answer

Title company disperses the funds to all parties.

Ryan Marrs · Answer

@Jeff Wallenius Thanks for your quick response. I'm still a little confused about how the payments are received. I understand that the wholesaler and the seller receive payments based on the negotiated prices as you stated above, but who disperses the final amounts. Is the Title company involved with that?

Jeff Wallenius · Answer

@Ryan Marrs the seller is paid on the closing and receives the amount that you have negotiated. You get paid on closing on the amount above what price you've negotiated with the seller. Be sure that you can close if you can't find a buyer!

Wholesale Transactions: How does everyone get paid?

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