I just paid an $80,000 wholesale fee...

Wholesaling
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I just paid an $80,000 wholesale fee...

Luc Boiron
Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes

Another investor in my network recently got a property under contract, and was looking to assign it. I saw it on Monday, and he gave me his "buy it now" price (ie: don't wait to see if any other investors are interested and potentially the price could be higher or lower).

The numbers worked for me so I went firm, not knowing how much his wholesale fee was but knowing it would be a lot. I don't care - it's a good deal.

He had this bungalow in Toronto, Ontario under contract for $520,000, and assigned it to me for $80,000. I both flip and wholesale, but the largest assignment fee I've ever received on a wholesale was $70,000, and now I'm paying an $80,000 fee!

However, what does that matter? I'm paying $600k. It needs a lot of work, which I'm anticipating will cost $120k. The comps at the moment show this would sell between $900k-$1m. I'll likely make well over $100k on this to share with a partner.

If you every have a buyer balking at your wholesale fee, they're either inexperienced, or there isn't enough meat left on the bone for the buyer.

Everyone should make money when we;re doing deals!

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Natalie KolodijBusiness Member
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Tax Strategist| National Tax Educator| Accepting New Clients 路 Member since 2014 路 3k+ posts 路 4k+ votes
8y

It's funny how this goes to show that each person's perspective of a great profit, great deal, risk level are so varied and really...there's no right or wrong answer. 

I know people who are thrilled to make $20k on a flip. 

I know people who won't get out of bed for under $100k. 

Both those people are doing better then they were before investing *shrug*

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  • Keisha Andrew
    Real Estate Broker 路 Medford, OR 路 Member since 2018 路 61 posts 路 34 votes
    8y
    @Luc Boiron I like this. The property is only worth as much as someone will pay. If the numbers worked in your favor and you were ok with making the projected profit it doesn鈥檛 matter the wholesale fee, you got the property. Inexperienced or not it鈥檚 all about your situation and your numbers. We are all different people and have different ways to invest in real estate. :)
    2Reply
  • Kyle Pierce
    Flipper/Rehabber 路 Lehi, UT 路 Member since 2016 路 86 posts 路 64 votes
    8y
    @Luc Boiron nice job picking up the deal! As a flipper and a wholesaler, I鈥檝e made big wholesale fees and paid big wholesale fees. Some people think that wholesaling takes no risk, but that鈥檚 not true at all. Usually the wholesaler is paying thousands of dollars in marketing, spending a lot of time and energy to get these deals. In some cases the wholesaler could be taking more risk than the rehabber if the rehabber has all the systems in place to flip a property quick. Some very exoerienced flippers can rehab a property in 4-6 weeks and make a verg good profit. Risk, just depends on the different perspectives. In the end it shouldn鈥檛 matter what the wholesaler makes as long as the deal works for the buyer and meets his or her criteria
    5Reply
  • Charles M.
    Montgomery, AL Investor 路 Member since 2018 路 171 posts 路 56 votes
    8y

    馃槑

    0Reply
  • Cody L.
    Rental Property Investor 路 San Diego, CA 路 Member since 2013 路 3k+ posts 路 4k+ votes
    8y
    Originally posted by @Luc Boiron:

    Another investor in my network recently got a property under contract, and was looking to assign it. I saw it on Monday, and he gave me his "buy it now" price (ie: don't wait to see if any other investors are interested and potentially the price could be higher or lower).

    The numbers worked for me so I went firm, not knowing how much his wholesale fee was but knowing it would be a lot. I don't care - it's a good deal.

    He had this bungalow in Toronto, Ontario under contract for $520,000, and assigned it to me for $80,000. I both flip and wholesale, but the largest assignment fee I've ever received on a wholesale was $70,000, and now I'm paying an $80,000 fee!

    However, what does that matter? I'm paying $600k. It needs a lot of work, which I'm anticipating will cost $120k. The comps at the moment show this would sell between $900k-$1m. I'll likely make well over $100k on this to share with a partner.

    If you every have a buyer balking at your wholesale fee, they're either inexperienced, or there isn't enough meat left on the bone for the buyer.

    Everyone should make money when we;re doing deals!

    Well done.  It's hard to teach yourself to worry about what you're going to make on a deal, not what someone else is going to make.

    I deal with a lot of bird dogs who send me deals.  They smile and dial and find people who will sell (multifamily).  They used to want to put them under contract and then wholesale them to me but that became to complicated. So now if they find someone that'll sell, they send them to me and I pay them 3% of the deal.  I just did one that was $3.2m.  Dude got about $100k.    And literally he just said "Cody, this guy will sell.  Here is his phone #"   (I'm sure he put more time into finally reaching the guy, not to mention all the other failed attempts, but still.  He got ~$100k for putting me in touch with him)

    3Reply
  • Cody L.
    Rental Property Investor 路 San Diego, CA 路 Member since 2013 路 3k+ posts 路 4k+ votes
    8y
    Originally posted by @Brandon Sturgill:

    @Luc Boiron What if you can't sell it...mayber post again when the deal is done...

     What if a rock falls on your head.  Geeze dude, be happy for the guy.  Seems like he's done enough deals to be somewhat realistic with his expected numbers

    2Reply
  • Ramsin Jacob
    Realtor 路 San Jose, CA 路 Member since 2018 路 184 posts 路 71 votes
    8y
    @Jay Hinrichs Thats a very low fee for that size of a deal. That wouldn鈥檛 fly in the Bay Area.
    0Reply
  • Account Closed
    Investor 路 Singapore 路 Member since 2013 路 1k+ posts 路 3k+ votes
    8y

    Its not about the absolute amount you make but about the return on the capital (i,e risk) that you make. I would never partner on a deal with those kinds of numbers. You are putting $720K at risk to earn $100. So like 12% return. I would think flips should be at least 25-30% return to make it worthwhile. The wholesaler in this is the smartest. He made 80% of what you made with zero risk and infinite ROI.

    7Reply
  • Claude Boiron
    Real Estate Educator, Mentor, Investor 路 Toronto, Ontario 路 Member since 2015 路 206 posts 路 86 votes
    8y

    Anyone reading or commenting on this thread who is not from the Greater Toronto Area should read what the people from the Greater Toronto Area are saying. This is a deal! You need to understand the local market fundamentals and drivers to understanding the underlying risk (versus reward). There is virtually NO SUPPLY in Toronto. We grow by 100,000 people every year. TENS of MILLIONS of square feet of new office buildings have been completed and leased, with more under construction and largely pre-leased. I'm not ranting, but rather, suggesting that understanding local market conditions are extremely important to understanding a deal. I know I would make more money in the States, or overseas, in anything related to Real Estate, but we've got something special here in Canada (read the just-release 10 Best Cities to live in report....?)  :-)

    6Reply
  • Ian WalshBusiness Member
    Lender 路 Philadelphia, PA 路 Member since 2016 路 2k+ posts 路 1k+ votes
    8y

    This is a good post.  If you care about what a wholesaler makes, you are giving off red flags that you don't know what you are doing.  The strongest buyers could care less.  They have their number and if it works, they pay it.  If it doesn't, they walk away.

    3Reply
  • John Woodrich
    Flipper/Rehabber 路 Minneapolis, MN 路 Member since 2016 路 1k+ posts 路 1k+ votes
    8y
    Originally posted by @Luc Boiron:

    Loving the different opinions.

    @JD Martin You're right that it's in Canadian dollars. I agree it is a bit of a mental block if the wholesaler makes as much as me, but like you said, what matters is that everyone is making money.

    For the naysayers, I always try to think of what the deal is worth to me, not what the other person makes. If this person had gotten the property for $100k, and sold it to me for $500k, would I be upset? Not at all! I would be over the moon, because a got a property where the unrenovated comps are around $750k+ for only $500k. It doesn't matter that he would make $400k, because I'm making good money. What the wholesaler makes on a deal doesn't change what it's worth to me.

    To me it is starting to sound like the point of this post is to sell wholesaling and justify large wholesale profits....

    Using your example - if a wholesaler purchased a property for $100k and sold it to me for $500k I would first wonder what the major problems are that I didn't see!!  Not zoned for a house, getting demoed by the city, etc.

    Until you sell the property and get past all of the renovation unknowns you don't know that you will make any money on the property.  

    0Reply
  • Kevin Dang
    Specialist 路 Oakland, CA 路 Member since 2014 路 83 posts 路 28 votes
    8y

    All,

    What is the typical commission for wholesale fee?

    1Reply
  • John Woodrich
    Flipper/Rehabber 路 Minneapolis, MN 路 Member since 2016 路 1k+ posts 路 1k+ votes
    8y
    Originally posted by @Kevin Dang:

    All,

    What is the typical commission for wholesale fee?

    No such thing as typical, just get how much you can squeeze out of the buyer to try and make a win-win :)  

    0Reply
  • Sam B.
    Investor 路 Indianapolis, IN 路 Member since 2015 路 270 posts 路 217 votes
    8y
    Originally posted by @Claude Boiron:

    Anyone reading or commenting on this thread who is not from the Greater Toronto Area should read what the people from the Greater Toronto Area are saying. This is a deal! You need to understand the local market fundamentals and drivers to understanding the underlying risk (versus reward). There is virtually NO SUPPLY in Toronto. We grow by 100,000 people every year. TENS of MILLIONS of square feet of new office buildings have been completed and leased, with more under construction and largely pre-leased. I'm not ranting, but rather, suggesting that understanding local market conditions are extremely important to understanding a deal. I know I would make more money in the States, or overseas, in anything related to Real Estate, but we've got something special here in Canada (read the just-release 10 Best Cities to live in report....?)  :-)

    There is virtually no supply, a growing population and plenty of office buildings under construction in quite a few cities.

    Toronto is vastly overvalued. Probably the least controversial "bubble city" in North America.

    http://1.bp.blogspot.com/-sTzTdzfTYQE/VM44tm-GV2I/...

    Totally sustainable. And Canada's 5 year balloon ARMs are I'm sure much safer than our 30 year fixed.

    0Reply
  • John Woodrich
    Flipper/Rehabber 路 Minneapolis, MN 路 Member since 2016 路 1k+ posts 路 1k+ votes
    8y
    Originally posted by @Claude Boiron:

    Anyone reading or commenting on this thread who is not from the Greater Toronto Area should read what the people from the Greater Toronto Area are saying. This is a deal! You need to understand the local market fundamentals and drivers to understanding the underlying risk (versus reward). There is virtually NO SUPPLY in Toronto. We grow by 100,000 people every year. TENS of MILLIONS of square feet of new office buildings have been completed and leased, with more under construction and largely pre-leased. I'm not ranting, but rather, suggesting that understanding local market conditions are extremely important to understanding a deal. I know I would make more money in the States, or overseas, in anything related to Real Estate, but we've got something special here in Canada (read the just-release 10 Best Cities to live in report....?)  :-)

    Aye Mate,

    You can't say this is a deal without knowing the property, the condition, and exact location.  There are houses in the US in bad neighborhoods that are not worth a dollar.  If this house was supported by one 2x4 and needed a new concrete foundation it would clearly be a worse deal than "whatever size renovation he probably thinks it is".

    0Reply
  • Claude Boiron
    Real Estate Educator, Mentor, Investor 路 Toronto, Ontario 路 Member since 2015 路 206 posts 路 86 votes
    8y

    Hi @John Woodrich, you're sort of making my point (thank you), which is that people are freaking hearing an $80K wholesale fee was paid to make an expected profit of $100K+. The risk level is entirely dependent on the property and the market.

    0Reply
  • Claude Boiron
    Real Estate Educator, Mentor, Investor 路 Toronto, Ontario 路 Member since 2015 路 206 posts 路 86 votes
    8y

    @Sam B. I've heard arguments like yours for the past 10 years, so forgive me for having become immune. I'm the first one who would like to see a correction, but sadly, I don't see it happening soon.

    1Reply
  • John Woodrich
    Flipper/Rehabber 路 Minneapolis, MN 路 Member since 2016 路 1k+ posts 路 1k+ votes
    8y
    Originally posted by @Claude Boiron:

    Hi @John Woodrich, you're sort of making my point (thank you), which is that people are freaking hearing an $80K wholesale fee was paid to make an expected profit of $100K+. The risk level is entirely dependent on the property and the market.

    My point was a little different.  You mentioned to us US Folk that if we knew Toronto we would know this was a deal.  As if this is common knowledge that the numbers presented were a deal...  I am saying that there isn't enough information presented to state "this is a deal" regardless of location.

    0Reply
  • Sam B.
    Investor 路 Indianapolis, IN 路 Member since 2015 路 270 posts 路 217 votes
    8y
    Originally posted by @Claude Boiron:

    @Sam B. I've heard arguments like yours for the past 10 years, so forgive me for having become immune. I'm the first one who would like to see a correction, but sadly, I don't see it happening soon.

    The fact that it's been irrational for 10 years doesn't make it any more sustainable or any less likely to correct.

    0Reply
  • Luc Boiron
    OP
    Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes
    8y
    Originally posted by @Kevin Dang:

    All,

    What is the typical commission for wholesale fee?

     Thank for the question Kevin. There isn't a standard wholesale fee. Different wholesalers can create their own standards, such as 5% of the price, or $5k, etc. The price that a wholesaler can set is based on what their buyers are willing to pay.

    0Reply
  • Luc Boiron
    OP
    Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes
    8y
    Originally posted by @John Woodrich:
    Originally posted by @Luc Boiron:

    Loving the different opinions.

    @JD Martin You're right that it's in Canadian dollars. I agree it is a bit of a mental block if the wholesaler makes as much as me, but like you said, what matters is that everyone is making money.

    For the naysayers, I always try to think of what the deal is worth to me, not what the other person makes. If this person had gotten the property for $100k, and sold it to me for $500k, would I be upset? Not at all! I would be over the moon, because a got a property where the unrenovated comps are around $750k+ for only $500k. It doesn't matter that he would make $400k, because I'm making good money. What the wholesaler makes on a deal doesn't change what it's worth to me.

    To me it is starting to sound like the point of this post is to sell wholesaling and justify large wholesale profits....

    Using your example - if a wholesaler purchased a property for $100k and sold it to me for $500k I would first wonder what the major problems are that I didn't see!!  Not zoned for a house, getting demoed by the city, etc.

    Until you sell the property and get past all of the renovation unknowns you don't know that you will make any money on the property.  

     Interesting way to think about it. If I bought it for $600k, couldn't it also not have major problems that I didn't see? Should it make any difference? To me it doesn't. You never know if you will make money on a flip when you buy it. But you do make your money on the buy, and on this one, I got what I would consider a good deal.

    0Reply
  • Michael Plante
    Deland, FL 路 Member since 2017 路 2k+ posts 路 1k+ votes
    8y

    I would happily pay 600k for a house which would sell for 1 mil after 125k in fixup

    1Reply
  • Luc Boiron
    OP
    Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes
    8y
    Originally posted by @Alexander Felice:

    It's not irrelevant what someone makes on a wholesale fee

    Now, you didn't know what his fee was, so the asymmetric information cost you quite the pretty penny, if you had known, would have negotiated harder?

    if he gave you a better deal, could you then turnaround and do more business with him, and sooner?

    Interesting dynamics to say the least. that guy made nearly the same you made and took zero risk, the only way this happens is with asymmetric information. a capitalist market with more transparency and pricing information would have never let this happen. That's kinda why I like real estate though, ineptitude and sleaze allow for outsized gains not possible in balanced industries (like the stock market).

    Glad both parties made some money though! congrats on your deal

     Really, for me, it should be irrelevant. Would I have paid his fee if I knew? Yes. Other people were interested too and I didn't want to hesitate. 

    The main question for me is what would I have paid the seller if I was dealing directly with the seller? I would have paid $600k or possibly a little more. So I have no issue paying the same amount with a wholesaler making part of that. The property is worth the same with or without the wholesaler involved.

    2Reply
  • Luc Boiron
    OP
    Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes
    8y
    Originally posted by @Account Closed:

    Its not about the absolute amount you make but about the return on the capital (i,e risk) that you make. I would never partner on a deal with those kinds of numbers. You are putting $720K at risk to earn $100. So like 12% return. I would think flips should be at least 25-30% return to make it worthwhile. The wholesaler in this is the smartest. He made 80% of what you made with zero risk and infinite ROI.

    Anish, a 12% return over 4 months is 36% annualized. In addition, my expected profit of $100k if things go poorly already includes paying 6 months of private money on 80% LTV of the purchase price. If I bring in an investor, it would be for the capital required - downpayment, closing costs, carrying and reno. If I do it with my own funds, I'll make $100-200k in 4-6 months on about $300-350k invested. Leveraged returns.

    0Reply
  • Caleb Heimsoth
    Rental Property Investor 路 Durham, NC 路 Member since 2016 路 7k+ posts 路 7k+ votes
    8y
    @Anish Tolia Hits it on the head again. I have said this before and will say it again. No one on BP seems to understand risk. We all talk about returns but never risk. You risk 700k to make 100k. Wholesaler risks 0 To make 80k. I鈥檒l take the latter every day of the week. Flipping is very risky. No matter where you are. End rant
    2Reply
  • Luc Boiron
    OP
    Specialist 路 Toronto, Ontario 路 Member since 2016 路 564 posts 路 425 votes
    8y

    @Caleb Heimsoth I agree with you that I would rather Make $80k guaranteed than $100k+ in a risky way. At the same time, I have 2 points to add.

    The first is that I mentioned I would make well over $100k. A comp 10 houses away with the same type house and only a slightly better lot (and very nice reno) sold a month ago for $1.09m. The comps show I should not have an issue hitting $950k, and over 1m is possible. At $900k my expected profit would be $96k, after paying a private first 80% LTV mortgage. At $1m, it would be about $192k. Since I would have a private first mortgage, I would need about $300-350k capital.

    The second point is that someone else already found this deal. There was no way for me to make that $80k wholesale fee for no risk. So it wasn't an option between doing the wholesale and doing the flip. It was an option between taking the risk on the flip, or not doing anything on this deal. I chose to take on the flip.

    If it was between the wholesale and the flip, that would be a hard one. The risk adjusted returns may still be higher on the flip. However, between the risk and the addition time in managing the flip, it would probably be better just to make that wholesale fee.

    2Reply
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