First wholesale deal

6 Replies

Hello everyone! I am brand new to Bigger Pockets and to real estate investing. In fact, my husband I may put our first contract on a home today with an offer well below the value in hopes of transferring the contract to an investor for a 'finder fee'. Any advice for us before we do it?

Welcome to Biggerpockets and real estate investment, Kimberly! I'm a newbie as well, and am also doing wholesaling. I'm in the process of setting up my wholesaling business from the ground up. Consider telling the story of how you came across your first deal and the process you went through getting it under contract! 

Congratulations on getting that first deal under contract. As you mentioned your next step will be to get that contract re-assigned to an investor and get paid. It's good that your contract is for well below the value of the house. First, let's ask a few questions. 

Does the home need any repairs, or is it completely updated? 

You may or may not have heard of the 70% rule, which means that (as a general rule), the ARV (after repair value) of the home x 70% (.7) - costs of renovations/upgrading = the most your buyer (investor) should be paying for the property. You want to make sure that your price is right before you start marketing the property to investors so that they don't discount you as "just another wannabe wholesaler."

A $100,000 ARV home with $15,000 in estimated rehab costs should not be bought for anything more than $55,000. That means that you want it under contract for $50,000 or so, because you want room for a good assignment or finders fee. Make sure those numbers work, because that is what your buyers are looking for.

Where are you getting your buyers? 
Well, you've got to find them somewhere. THere's always the marketplace here on BiggerPockets, which (I could be wrong but believe) you can access as a "Plus" member. In addition, you can look at your local REIA meet-ups to network and build a buyers list, as well as market your current property. you will want to have comps prepared as references to prove the ARV of the home, and actual estimates from contractors for repair costs would be very helpful and professional, although while some buyers will consider this step requisite, others may not even care. Regardless of how far you go with accuracy, I would prepare a good presentation for your property, meaning a nice portfolio/folder with the property, pictures, some briefs on comps, and a delineation of what the ARV is, price to the buyer, estimated repair costs, and maybe some features of the property. I haven't seen a lot of people do this but I feel like it's more professional and impressive.

Does everything with your contract check out? 

To do a reassignment for a finder's fee, you'll need to have a clause in your contract that says you can do that! This is as simple as the section that says "buyer," being followed by "or assigned," meaning either the buyer (you) are purchasing the property or whoever you assign it to. 

Have you made your earnest money deposit? 

You have to make your earnest money deposit with your real estate attorney or the title company you are using. Hopefully you put down something small like $10, to simplify things. 

How much will your finder's fee be? 

Again, you'll want to make sure your numbers work out. The 70% rule isn't a hard-and-fast law, but it's what the majority of investors I've spoken with go by. Some have other methods, and each market differs for sure. However, you want to make sure you're taking care of your buyer, because if they don't feel it's a deal, you're going to be holding on to that property for a while, potentially going past your "inspection period." $5,000 is a pretty fair fee. If you go up to $10,000 or more, you may want to consider double-closing instead of reassigning, because some buyers will get frustrated with you for making so much on the deal. I don't agree with this, as long as the buyer is making their fair share, but some will scoff at deals and turn away because of an outrageous assignment fee. 

Speaking of which, how long is your inspection period? 

This should also be outlined in your contract, and indicates how long you have to find your buyer. If you are unable to find a buyer, you need to cancel the contract before the inspection period ends. Via formal letter you can notify the seller that you are unable to purchase the property, legally breaking the contract. Be careful. Anyway, basically, your inspection period indicates how long you have to find a buyer. 

If I think of anything else, I'll let you know! Let me know if you have any questions. 

Good luck, and again, congratulations!

Hello Kim,

My name is L'Oréal,  im also a newbie with wholesaling from Dallas. Just wanted to say good luck on that contract and also thanks Devin for sharing what sounds like a lot of good info.

An assignment fee is a good way to get started but you need to transition in to doing simultaneous closes.  You'll make more money.  And the seller and buyer will not know how much money you make. 

Originally posted by @Jackie Lange :

An assignment fee is a good way to get started but you need to transition in to doing simultaneous closes.  You'll make more money.  And the seller and buyer will not know how much money you make. 

Hi Jackie, nice to see your name on BP! Hope you found a buyer for those properties back in March. 

Curious, could you share your thoughts on why a double close will make more money than an assignment? Wouldn't the second close add fees to the transaction, which could otherwise have been your profit?

Kimberly - good luck with the first deal! Once you have it under contract, please post the details, would be interested to hear it, and you'll likely get some great advice from the more experienced folks

Originally posted by @Dmitri L. :
Originally posted by @Jackie Lange:

Hi Jackie, nice to see your name on BP! Hope you found a buyer for those properties back in March. 

Curious, could you share your thoughts on why a double close will make more money than an assignment? Wouldn't the second close add fees to the transaction, which could otherwise have been your profit?

Hey Dmitri

I sold all of those houses and recently sold a few more.. all in less than a week at full retail prices.  The Dallas market is hot hot hot.

About wholesale flip deals...

The closing costs are small change compared to the profit potential of a wholesale flip.  Closing costs are usually passed on to your buyer anyway.  Most title companies will not charge full fees for both sides of a simultaneous close. 

If you do an assigment of your contract, you are usually limited to profits of less than $5k.  Otherwise, the buyer's greed glands get swollen and they could go around you on the deal and cut you out completely. ( yes that really happens unfortunately)

If you assign your contract, the seller knows what your profit is too.  It could kill the deal if they think you are making too much money on "their" house.  

With a simultaneous close, neither the buyer or the sellers knows what your profit is so there is less chance of losing the deal.. and all the profit.

The chances of you getting paid a $20,000 or $30,000 or $50,000 assignment fee for a wholesale flip deal are slim to nothing.  But you can realistically make that kind of profit on a wholesale flip if you negotiate a really great contract then do a simultaneous close.  

This is not theory!  I know because I've done thousands of wholesale flips.

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