Philadelphia, PA · Member since 2014 · 3 posts · 0 votes
Hi All :-)
I have a question. I have been wholesaling for a few months now and I have only been assigning $3-$5k a deal. I now have a deal that I'm selling for $700k. How much should I make off of that? I have never had a deal that big so I don't want to short change myself.
So you now know I have not wholesaled anything yet, so no hands-on knowledge but the "book knowledge" I've gained here on BP tells me that you can sell it for whatever you want as long as there is room for the end buyer to make his/her profit. Theoretically it shouldn't matter what you make as long as the end buyer has a smokin' deal.
That being said, I believe there are various ways to close the deal so that your end buyer doesn't balk at settlement and leave you high and dry (double close vs assignment - if there is a huge spread here it may be worth the fees to double close to keep your fee your business).
Berkeley, CA · Member since 2013 · 47 posts · 28 votes
12y
First off, congrats on making those deals happen.
Second, I'm a complete novice here, but I'm guessing the experts will need a bit more info to help you out in terms of pricing.
Do you have some good relationships with your buyers? Do any of them invest in higher priced properties like this? Is this property in Philly?
From my understanding, just because the price is higher, doesn't really change a whole lot. If you have it under contract for a good price, you know what the repairs will cost and what it will sell for and you already have some buyers - you should be able to decide how much you want to make on it.
IE - if you've got it under contract for $600k and know you can sell for $700k, why not put $100k in your pocket? You also know how much wiggle room you have when it comes to marketing/negotiating with your buyers.
Flipper/Rehabber · Carrollton, TX · Member since 2013 · 165 posts · 71 votes
12y
It all depends on how much room you have on it. Does the owner of the property know you are wholesaling their property? Is the seller paying your fee or the buyer? For instance, if the seller wants 700k for the property, are you going to be tagging your fee on top of the purchase price to the buyer? Or are you just selling it for 700k to a buyer and charging a fee to the seller?
Philadelphia, PA · Member since 2014 · 3 posts · 0 votes
12y
Thanks for all your replies!
I get my leads from bandit signs, online marketing, and attending investment clubs.
Yes, the owner knows I'm whoelsaling the property. The buyer will be paying the fee. I'm not sure if I should use an assignment fee or just take a 4% fee on the final purchase price from the buyer.
Flipper/Rehabber · Arlington, TX · Member since 2013 · 1k+ posts · 2k+ votes
12y
Real estate is compared by looking at the price per square foot. To determine & demonstrate the ROOM in this deal, you need to know:
1) Square footage (size) of your subject property
2) The $/sq.ft. of SOLD COMPARABLE houses (recent sale, similar size, quality, and year built)
With this info, you can show potential buyers what their upside is likely to be - e.g., comparable properties recently sold at $90/sq.ft and you're offering it at $60/sq.ft..... That's what people will care about, not that you bought it a $50/sq.ft. or whatever.
A lot of great responses but no one is asking the right question. What is the after repair value (ARV)?
Agreed. Can't really answer "what to charge" when you don't have the ARV.
But...
Everyone is someone right. Charge enough so the buyers come back.
My thought is this... if you're on this site asking what you should charge. Just charge like 2x or 3x the amount you have. You want the experience to see if "you're value" was on the money... aka the ARV.
Also... if it's a "deal"... you should be able to get a bidding war. Someone would say "I want it, I'll take it for $720K now".
Birmingham, AL · Member since 2013 · 149 posts · 44 votes
12y
Originally posted by @Jeff Coga:
Originally posted by @Jonathan Mednick:
A lot of great responses but no one is asking the right question. What is the after repair value (ARV)?
Agreed. Can't really answer "what to charge" when you don't have the ARV.
But...
Everyone is someone right. Charge enough so the buyers come back.
My thought is this... if you're on this site asking what you should charge. Just charge like 2x or 3x the amount you have. You want the experience to see if "you're value" was on the money... aka the ARV.
Also... if it's a "deal"... you should be able to get a bidding war. Someone would say "I want it, I'll take it for $720K now".
God speed.
-Jeff Coga
Sorry but I disagree. I have been doing this long enough, have wholesaled hundreds of properties. I buy and flip 10-15 each month.
If he wants $700K and it's worth $1M with $200K in renovations, it's not a deal. For a high end property like this which would require high end furnishings and also depending on the market where it is located, it would pay 55%-70% of the ARV depending on the cost of renovations.
Without knowing the ARV and cost of renovations, it is NOT a deal. A lot of wholesalers who bring me their deals overestimate the ARV and underestimate the cost of renovations. The hardest area for wholesalers to master is determining cost of renovations and rarely do they get it right.
Developer · Hollywood, CA · Member since 2011 · 81 posts · 29 votes
12y
Sorry but I disagree. I have been doing this long enough, have wholesaled hundreds of properties. I buy and flip 10-15 each month.
If he wants $700K and it's worth $1M with $200K in renovations, it's not a deal. For a high end property like this which would require high end furnishings and also depending on the market where it is located, it would pay 55%-70% of the ARV depending on the cost of renovations.
Without knowing the ARV and cost of renovations, it is NOT a deal. A lot of wholesalers who bring me their deals overestimate the ARV and underestimate the cost of renovations. The hardest area for wholesalers to master is determining cost of renovations and rarely do they get it right.
This question was what to charge. You said you need to know ARV.
I'm suggesting to just charge the same amount as if he was doing the dinky deals so he learn the market and how to price stuff.
If you're flippng 10 to 15 then you know you didn't just wake up and figure out cost of construction over night and or how to analyze a property. If you agree with me on that... I'm just simply telling this man to just make a small fee instead of trying to figure out "what to charge" or "am I leaving too much on the table".
I agreed on your ARV first statement, I said to charge a small fee, document YOUR ARV and see how far off you where on the amount.
Am I missing something??!?! But if you want... sure we can agree to disagree. LOL
I'm not sure if I should use an assignment fee or just take a 4% fee on the final purchase price from the buyer.
And this is how people get felony charges for practicing real estate without a license. If you have a property under contract for X amount you can sell your interest for a dollar amount and be fine. If you're now taking a percentage off the deal you're acting as an agent, even if it's the buyer that's paying you.
Figure out what the ARV and repairs are on it, the fact that it's "a $700k house" is meaningless. Like Johnathan said you have to figure out how much meat is left on the bone and price it based on that. You may be able to make $100k on the deal or you might have a deal that nobody would take even with a $0 fee.
Investor · Wylie, TX · Member since 2013 · 102 posts · 4 votes
12y
I don't think anyone has given the formula yet.... So take the ARV (after repair value) and multiply it by .7 to represent 70%. Then subtract the repairs needed to get it to the ARV. Then subtract your fee. That's your MAO (max allowable offer). So for example. Let's say the property is worth 1M dollars (ARV). If it needs 200k in work, and you want to make 100K. Then your MAO is done with this equation.
1,000,000 X .7= 700,000
700,000-200,000= 500,000
500,000-100000=400,000
This 400,000 represents your MAO. If you want to decrease your fee then you will be cutting into your profit and with this example you have ample room to do this. I hope this helps.
Birmingham, AL · Member since 2013 · 149 posts · 44 votes
12y
@Jeff Coga We can agree to disagree but even when I was doing my first deal, I had a mentor working with me to make sure I took a nice assignment fee while leaving enough meat on the bone for my buyer. For a deal this size @Jessika Perkins really needs to consult an experienced wholesaler. So, if it turns out that she could take $25K on the assignment, she can split it.
@Spencer OBrien provides a solid formula but it needs to be adjusted depending on the market you are in and costs of renovations. 70% LTV works well in certain markets like LA, MIA, AZ, NY areas but not in all areas. Here in Birmingham, I am at 55%-60% LTV. An experience wholesaler mentor in Jessika's area would be able to assist her.
@Patrick L. Could not agree more. I am a licensed AL broker as well and the reason for being one is that if I can not make my spread on a deal, I will broker it. That's an advantage I have over competitors.
@Jessika Perkins - You can not earn a commission without a realtor's license. You either have to wholesale it with the contract in your name so you have equitable interest in the property or you can double close it. Otherwise, you can face some serious legal problems if you try to act as an unlicensed agent. My advice is to find yourself a local mentor who can walk you through the deal and split the profits.
Philadelphia, PA · Member since 2014 · 3 posts · 0 votes
12y
I'm here Greg :-)
To answer your question, it is actually a package of 14 turn key units that are all occupied and worth over 1 million dollars. No repairs are needed, just basic up keep of the properties and property management fees. I already have multiple buyers who are interested, so finding a buyer isn't a issue. I just wanted to get some advice on how much I should make on the deal.
I appreciate John's and Patrick's feedback on the commission. I will be doing an assignment fee on this deal.
Thanks Jeff, I do agree that in order to know my fee, I need to know what the ARV is and how much of a deal my end buyer is getting.