I am working with a wholesale company who was able to enter into a purchase agreement for a property in Sierra Madre, CA for $875K without actually giving an earnest money check (seller is asking for 3% in earnest money, or $26,250). The wholesaler company and I are marketing the deal to investors (needs at least $137K in rehab costs and will have an ARV of $1.2 - $1.3 million on the low side). One option is to sell the contract. How much should we ask for:
- $25K on the back-end of the purchase paid through escrow, or
- $10K on the front-end outside of escrow
We have extended this deal twice without having to put up the earnest money, but time is running out. I have one investor who is interested, but they want the whole deal (rather than be an equity partner in a joint venture to purchase, rehab and sell the property). So I need to know what's a reasonable price to ask for (I don't normally wholesale).
God Bless You!
i'll wait for the responses, i am curious as well.
Does the end buyer know the purchase price on your contract with your seller? If not, why not just use transactional funds and a double close? Use the transactional funds to close with your seller and then a few hours later close with the end buyer with a price that allows you to make the fee you would have made by assigning the contract.
So the wholesale company found and put the home under contract and then you brought the buyer correct? In this situation I would require no less then 50% of the profit as bringing the buyer is the most important piece in this situation. If the situation was turned around where you only brought the deal and they brought the buyer I would require 25%.
@Copelon Kirklin: This property was listed on the MLS, so everyone knows the purchase price. The Wholesale company didn't have the $26,250 EMD to secure this contract and properly find an investor to rehab this property, so they wouldn't have been able to do a double closing (they didn't have a buyer for the property to do the rehab, let alone someone who would actually buy the property once it's the rehab is completed).
God Bless You!
@Curt Davis: I was brought into the deal by the Wholesale company to do one of three things:
1. Find an equity partner to do a joint venture with the Wholesale company to purchase, rehab and sell the property.
2. Find a buyer/investor who would agree to buy the house once we finished (in that case we would have done simultaneous escrows and use their money to fund the first escrow).
3. Sell the contract for either a fee on the backend paid via escrow upon the close of the purchase ($25K) or an upfront fee outside via escrow paid immediately ($10K).
Unfortunately, we were not able to do any of the three above and therefore the lost the contract because we didn't produce the $26,250 EMD. Oh well, on to the next deal. We are tracking this property to see what ultimately happens.
God Bless You!
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