How do you determine a proper wholesale fee?
Hello everyone, I know it's an incredibly simple question, but I really want to corroborate with more seasoned wholesalers how to determine if I am asking for too little or too much when wholesaling a property. Where do we draw the line with the fee?
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Hi @Gabriela Pecunia and welcome to BiggerPockets!
It's sounds like a reasonable question: How much can I charge as a wholesaling fee? But, the truth is you don't really get to determine the wholesale fee: Your seller and your buyer do.
Wholesale fees are not set; they are earned.
The most you can charge is whatever still allows your investor buyer to make an acceptable profit. The least is whatever you're willing to accept for your time and energy.
For example, let's say I'm selling a rental deal to a buy-and-hold investor, and I determine that they will earn a very appealing 11% cash-on-cash return (CoCR) if they can buy the deal from me for $70K. That means I've got to get the deal locked in with my seller for less than $70K in order to earn a wholesale fee.
How much below $70K I can get is limited by circumstances and by my skill. If I can get the deal from the seller at $60K, then I've earned a $10K (-ish) wholesale fee. If I can only get it at $68K, then I can only receive $2K.