Two life lessons I am constantly reminded of when I am wholesaling is to (1) not count your chickens before they hatch and to (2) not put all of your eggs in one basket.
When you are selling off market properties, especially when you are seeking an assignment fee, many things can go wrong and deals fall through more often than you might think. Because of this, it is wise to have another stream of income other than your assignment fees.
@John Skaggs What would you say your typical assignment fee is? Being in St. Louis looking through CL at "wholesale" deals just makes me sick. 5k below market value is not a wholesale lol. I've even seen a few people from here list "deals" that are 85% ARV and wonder why they keep falling through.
Greedy wholesalers make wholesaling difficult for the rest of us, just like bad wholesalers do. I just explained to a newbie yesterday that - in my opinion - the assignment fee should be based upon a % of the investor buyer's estimated net profit, not on the purchase price or ARV.
If I look at my deals from that perspective, then my success is intrinsically tied to my buyer's success. I try to keep my buyer's at or above 20% ROI (that's net of their total projected investment), after the wholesale fee. I haven't found a single buyer, who making a net 20% ROI cares for even a nanosecond how much my assignment fee was!
There are several ways to prevent problems with your wholesale deals. I have been doing this for 9 years and have seen it all. Once I figure out how to protect myself I haven't had any deals fall through. Thankfully I figured this out quickly.
Here are a few ideas:
1. do your due diligence on a buyer - make sure to look them up and see what they have bought before.
2. Always collect a non refundable deposit from your buyers. Don't budge on this, if they wont put it down then you know they weren't serious and wouldn't close any ways. Always make them put some skin in the game.
3. Work with buyers you have worked with before. This isn't always possible, but you shouldn't just be blindly building a buyers list. You should focus on the investors that are actively buying several properties in that area. They will buy properties from you over and over again. Build relationships wit them and bring them great properties. I have buyers that consistently buy multiple properties from me month after month.
These aren't always the easiest things especially if you are a new investor because you just want to get the deal done.
My average fee is around $3,000. Most of my deals are going to be less than 50 cents on the dollar too. Usually around less than 20 cents on the dollar, not including rehab. I try to leave a large portion on the table for my buyer so that they will buy 50 more from me over the next 10 year or so. I try to close 2-3 each month and I also have other streams of RE income so I don't need to make $20k on a wholesale deal.
It bothers me a little when other wholesalers ask for such large fees sometimes. Especially when they have their numbers all wrong to begin with.
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