Compensating a wholesaler for delivering a rental portfolio?

Question

A local wholesaler presented a few turn-key rental properties for assignment that eventually grew into an opportunity to purchase an entire portfolio (17 properties) directly from an investor.  I want to reasonably compensate the wholesaler for delivering the deal, but there will be no cash left on the table at closing.  I’m using my SDIRA (all-in) and seller financing to fund the deal.  The wholesaler is willing to accept payment over time and/or interested in participating in some sort of partnership for a long-term hold.  Any suggestions/ideas on what compensation is reasonable and what type of partnership we should entertain?

Here’s an overview of the deal:

• 17 SFR’s originally marketed for $858K ($50.47K/unit average)
• $11.6K/Mo total income ($682/unit/month average)
• Agreed packaged price (as-is) = $632K
• ARV (based on BPOs) = $780K
• Repairs = $35K

While I don’t know how much the wholesaler had the initial properties under contract, I do know that the price we are now negotiating is well below whatever the numbers were.  I suspect, however, that the wholesaler could have made $1-2K/property had they sold the properties one at a time.

Michael Mies · Answer

Luke W. The wholesaler’s original assignment fee is off the table… my maximum offer is well below contracted amount for any one particular property plus we've now added several more properties to the mix.  At present, I am NOT dealing directly with the seller.  The wholesaler has proposed that $15K would be reasonable for an assignment (of a new contract with the seller).  The problem is that I’m all-in with my SDIRA available cash and can’t pay the assignment fee at closing.  Most likely, I’ll give the wholesaler a note to pay the fee over three months (wholesaler would rather have cash ASAP than back-end opportunities).  I had entertained doing a partnership (87.5% & 12.5% - representing $105K and $15K down payment equity stakes).

Adam West · Answer

I may have my hands on a very similar situation soon. I'll be very interested to see how this shakes out. I would also assume he's already worked in his assignment fee to this price if you're not speaking directly with the seller. Keep us updated on how this works out!

Luke W. · Answer

Is the wholesaler still in the negotiation or are you speaking directly with the seller? If you're still going through the wholesaler I would imagine that he has worked his assignment in the price you're at right now.