Structuring a Wholesale Deal

Structuring a Wholesale Deal

Real Estate Broker · Alameda, CA · Member since 2013 · 105 posts · 41 votes

My understanding with a wholesale deal is that it's much more streamlined and less prone to hang ups in closing when it's presented as an all-cash deal. My plan is to target the 70% ARV (minus repair costs, fixed costs, and my wholesaler's fee). However, I'm curious first of all if 70% ARV, being a rule of thumb, is actually a "good deal" or not to most investors. Secondly, I'm curious if the primary deal (with the seller, not the investor) has to be structured as all cash or not or if I can structure it as subject-to and cash for the difference for instance. Seems to me that the best deals to an investor are the ones where cash isn't transacted, but rather financing is leveraged. Thirdly, what kind of closing period would be typical? Retail markets typically target 30-45 days. That's usually to secure financing and address contingency inspections. Investors, I assume, do their same due diligence inspections but would typically close much more quickly due to having the cash (and a network of relevant inspectors available), no?

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  • Flipper/Rehabber · Atlantic County, NJ · Member since 2012 · 514 posts · 209 votes
    12y

    70% is typically a good starting point for a real cash buyer but every buyer comes up with their own budget for a rehab. Some (most) don't do the rehab they outsource so costs go up in that regard. So 70% less repairs doesn't work they want 60-65% less repairs for more security.

    I don't know your history so I'm gonna assume you haven't wholesaled anything before. So I would recommend just wholesaling a few times and learning the process before moving into subject-to. A wholesale deal should be structured as an all cash deal with the seller. One of the main reasons the seller excepts less in the deal is a quick closing and as-is condition.

    As a buyer (wholesaler) you have the leverage in terms of how and when to close. It's up to you to decide how to structure that with the seller. Every seller has a unique situation. Most investors set their own guidelines to make things more comfortable for them. It's their money or their investors money...

  • Real Estate Broker · Alameda, CA · Member since 2013 · 105 posts · 41 votes
    12y

    Thanks Nathan.  That certainly makes sense.  I don't have much experience in investing in real estate as of yet.  I'm just starting out.  But I can definitely appreciate that the variability is in the approximation of rehab costs as each investor would put their own unique perspective in on that piece of the deal.  The remainder appears to be more formulated from the sounds of it (not that a formula is the end-all be-all). 

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