Whitehall, PA · Member since 2013 · 7 posts · 0 votes
I am looking at a property being sold through a wholesaler. Technology being what it is, I was able to find the owner of the house and the actual contract that was signed between the owner and the wholesaler. Here is where I need some feedback. This contract is for $40,000. The wholesaler is marking it up to $65,000 (roughly a 62% markup). Is this normal? Ethical? Anywhere near decent? Any input would be appreciated.
Ethical? Yes, they're entitled to price it wherever they'd like.
I would say an average markup that I've seen in my market is ~$5,000, but I do get deals from some that try to milk the profits and squeeze $15k+. Unfortunately in doing so, these guys are pricing me out and we don't ever end up doing business.
For me as a rehabber, I reallly don't care how much they are making on the deal, as long as the numbers make sense for me. In fact, I'd like them to make as much as possible! If they can make $25k, and there is still room for me to make another $25k, that's fantastic! That just means that they have more money to put towards marketing and working on bringing me more deals.
When a deal comes to me as a rehabber, I'm just looking at one thing number wise: Does the offered price = 70% ARV - Repairs? If yes, I'm taking a closer look.
Ethical? Yes, they're entitled to price it wherever they'd like.
I would say an average markup that I've seen in my market is ~$5,000, but I do get deals from some that try to milk the profits and squeeze $15k+. Unfortunately in doing so, these guys are pricing me out and we don't ever end up doing business.
For me as a rehabber, I reallly don't care how much they are making on the deal, as long as the numbers make sense for me. In fact, I'd like them to make as much as possible! If they can make $25k, and there is still room for me to make another $25k, that's fantastic! That just means that they have more money to put towards marketing and working on bringing me more deals.
When a deal comes to me as a rehabber, I'm just looking at one thing number wise: Does the offered price = 70% ARV - Repairs? If yes, I'm taking a closer look.
As a wholesaler you have to be very careful and price your deals correctly. Me personally, I like to stay at 65% of ARV and below. If I price these deals like this The buyers will come. so to simplify. I have a property that has an ARV of 100k. I would sell to my investor for no more than 65k after repairs. If my cash investor has a property that is fixed up for 65k and he can resell for 100k, he/she is happy.
That is a large mark up especially for that price point. I probably wouldn't do it unless it was a really good deal. Anywhere from 5-10% of the ARV is the typical fee although many try to squeeze out more. The standard is for the wholesaler to buy the property at 50-65% ARV minus repairs with the rehabber buying it at 65-70% ARV minus repairs. The difference in the % would be the wholesaler's fee if that makes sense.
Well what's the property worth? His markup shouldn't matter as long as he's pricing it fairly and leaves enough room for your profit to be made after repairs costs are factored in
There is no standard markup. Does it matter what a car was traded in to the car dealer before they resell it at auction? Nope, the market determines what that item is worth.
This is simple economics, the market will tell you what it is worth. If the deal doesn't sell, they will lower their price and push it again until it sells. Do you make your purchases of investments based on an adequate or ethical markup or based on actual numbers that determine if it meets your criteria?
Do the numbers, if you like it buy it. If you don't then move on.
As others have stated what's it worth? Is 60k still a good deal? If it is then that's a guy you want to keep in contact with. If he can put houses under contract for that low of a price he is a true "wholeseller" Out Where I live most of the wholesellers are a joke. Bunch of guys who do not even own their own home. They email me and try to pitch me 50k properties that I can buy on the MLS all day for 25k-30k
Like everyone else is asking: Is it a good deal at $65K?
If so then it doesn't really matter if it is a high markup or not. If you want to try to ask for a lower price you can try. If it is actually a good deal at that price they might just say no and sell it to someone else.
If it isn't a good deal at that price but is north of the $40K then I'd ask for a discount to where I'd want to buy, since I won't buy at his price.
I will say that if you don't like the markup the alternative is do your own marketing for deals. If you don't feel the spread is worth the service then do it yourself. If you don't have time then don't worry about what others are making providing a service you can't or don't want to do, as long as the final numbers work for you.
If the numbers work for you, it's a deal. Try to negotiate, if the numbers work for you it should not matter what he is making. If you can't get this deal to match your buying criteria, then move on.