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

Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 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 · Member since 2014 · 3k+ posts · 4k+ votes

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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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
8y
Originally posted by @Sam B.:
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.
Whether Toronto justifies its property prices, and/or how much overvalued is real estate in the Big Smoke, is a generation-long debate in this country.
However, my main reason for responding is to point out that we do not have "ARMs" here in Canada. While it is true we have both fixed-rate and variable-rate financing for real estate, neither is like the adjustable-rate mortgage products found in the U.S.A.
That said, financing "terms" on residential properties, even for fixed-rate financing, are independent of the amortization in Canada (and, in most places other than the U.S.A.). Here, most financing for residential real estate will be underwritten using a 25-yr amortization. The actual financing itself may be either fixed-rate or variable-rate and will carry a term ranging from as short as 6-months to as long as 10-years, with 5-year, followed by 3-year, being the most common terms.
0 Reply
Sam B.
Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes
8y
Originally posted by @Roy N.:
Originally posted by @Sam B.:
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.
Whether Toronto justifies its property prices, and/or how much overvalued is real estate in the Big Smoke, is a generation-long debate in this country.
However, my main reason for responding is to point out that we do not have "ARMs" here in Canada. While it is true we have both fixed-rate and variable-rate financing for real estate, neither is like the adjustable-rate mortgage products found in the U.S.A.
That said, financing "terms" on residential properties, even for fixed-rate financing, are independent of the amortization in Canada (and, in most places other than the U.S.A.). Here, most financing for residential real estate will be underwritten using a 25-yr amortization. The actual financing itself may be either fixed-rate or variable-rate and will carry a term ranging from as short as 6-months to as long as 10-years, with 5-year, followed by 3-year, being the most common terms.
Property in Toronto has been at least in the ballpark of fairly valued for most of the last generation or two, the only exception coming to mind being the late 80s bubble and subsequent crash. This is not your run of the mill Toronto seller's market. This is unprecedented, unsustainable, and it will end badly.
You're not wrong, but it's a distinction without much of a difference. I suspect it will be of little comfort to anyone who is forced to refi after a substantial loss in equity if and when things get bad up there. The rate is a secondary issue. Long amortization periods w/ short terms plus sky high real estate values is a recipe for disaster. I've never taken out a balloon mortgage on residential property, I never intend to, and I'm in Indiana, of all places.
As a matter of fact, you'd be much safer with a US style ARM where at least the amortization period matches the loan term - your rate may go up but you won't be hit with a balloon payment that you can only pay off by hoping for a new appraisal in line with the inflated price at which the property was originally purchased. Looking at the numbers for the last crash, and considering that values today have far surpassed even that peak, that could be a substantial shortfall.
0 Reply
Luc Boiron
OP
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
8y
Originally posted by @Sam B.:

Originally posted by @Roy N.:

Originally posted by @Sam B.:

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.
Whether Toronto justifies its property prices, and/or how much overvalued is real estate in the Big Smoke, is a generation-long debate in this country.
However, my main reason for responding is to point out that we do not have "ARMs" here in Canada. While it is true we have both fixed-rate and variable-rate financing for real estate, neither is like the adjustable-rate mortgage products found in the U.S.A.
That said, financing "terms" on residential properties, even for fixed-rate financing, are independent of the amortization in Canada (and, in most places other than the U.S.A.). Here, most financing for residential real estate will be underwritten using a 25-yr amortization. The actual financing itself may be either fixed-rate or variable-rate and will carry a term ranging from as short as 6-months to as long as 10-years, with 5-year, followed by 3-year, being the most common terms.
Property in Toronto has been at least in the ballpark of fairly valued for most of the last generation or two, the only exception coming to mind being the late 80s bubble and subsequent crash. This is not your run of the mill Toronto seller's market. This is unprecedented, unsustainable, and it will end badly.
You're not wrong, but it's a distinction without much of a difference. I suspect it will be of little comfort to anyone who is forced to refi after a substantial loss in equity if and when things get bad up there. The rate is a secondary issue. Long amortization periods w/ short terms plus sky high real estate values is a recipe for disaster. I've never taken out a balloon mortgage on residential property, I never intend to, and I'm in Indiana, of all places.
As a matter of fact, you'd be much safer with a US style ARM where at least the amortization period matches the loan term - your rate may go up but you won't be hit with a balloon payment that you can only pay off by hoping for a new appraisal in line with the inflated price at which the property was originally purchased. Looking at the numbers for the last crash, and considering that values today have far surpassed even that peak, that could be a substantial shortfall.
I'm not sure what Roy's experience has been, but I've never hear of a borrower being asked to repay the loan at the end of a term, unless they aren't making regular payments. Instead, in my experience, the banks will allow you to roll over to a new term without re-qualifying, at their new market rates. My father was in RE in Toronto since the 1960's and never saw banks calling residential loans at the end of terms (commercial is a different story). This is true for the major banks, may be different with small lenders.
I imagine it's much riskier to do a subject to deal, banks are much more likely to call a loan if they find out the property has been transferred. Have yet to see a subject to deal in Canada where the property was actually transferred but not the mortgage.
0 Reply
Sam B.
Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes
8y
Originally posted by @Luc Boiron:
Originally posted by @Sam B.:

Originally posted by @Roy N.:

Originally posted by @Sam B.:

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.
Whether Toronto justifies its property prices, and/or how much overvalued is real estate in the Big Smoke, is a generation-long debate in this country.
However, my main reason for responding is to point out that we do not have "ARMs" here in Canada. While it is true we have both fixed-rate and variable-rate financing for real estate, neither is like the adjustable-rate mortgage products found in the U.S.A.
That said, financing "terms" on residential properties, even for fixed-rate financing, are independent of the amortization in Canada (and, in most places other than the U.S.A.). Here, most financing for residential real estate will be underwritten using a 25-yr amortization. The actual financing itself may be either fixed-rate or variable-rate and will carry a term ranging from as short as 6-months to as long as 10-years, with 5-year, followed by 3-year, being the most common terms.
Property in Toronto has been at least in the ballpark of fairly valued for most of the last generation or two, the only exception coming to mind being the late 80s bubble and subsequent crash. This is not your run of the mill Toronto seller's market. This is unprecedented, unsustainable, and it will end badly.
You're not wrong, but it's a distinction without much of a difference. I suspect it will be of little comfort to anyone who is forced to refi after a substantial loss in equity if and when things get bad up there. The rate is a secondary issue. Long amortization periods w/ short terms plus sky high real estate values is a recipe for disaster. I've never taken out a balloon mortgage on residential property, I never intend to, and I'm in Indiana, of all places.
As a matter of fact, you'd be much safer with a US style ARM where at least the amortization period matches the loan term - your rate may go up but you won't be hit with a balloon payment that you can only pay off by hoping for a new appraisal in line with the inflated price at which the property was originally purchased. Looking at the numbers for the last crash, and considering that values today have far surpassed even that peak, that could be a substantial shortfall.
I'm not sure what Roy's experience has been, but I've never hear of a borrower being asked to repay the loan at the end of a term, unless they aren't making regular payments. Instead, in my experience, the banks will allow you to roll over to a new term without re-qualifying, at their new market rates. My father was in RE in Toronto since the 1960's and never saw banks calling residential loans at the end of terms (commercial is a different story). This is true for the major banks, may be different with small lenders.
I imagine it's much riskier to do a subject to deal, banks are much more likely to call a loan if they find out the property has been transferred. Have yet to see a subject to deal in Canada where the property was actually transferred but not the mortgage.
You are also not wrong, but there is absolutely no guarantee that that will be the case if and when things get ugly. Likely uglier than they've ever been. What you know is what you have on paper, and if the paper says that the bank may require you to fork over a balloon payment or refinance in 5 years, then you should be prepared to either do so or spend a lot of time praying.
The banks will also likely come down quite a bit harder on the speculative investors, of which there is no shortage.
And disregarding all of that, they're still effectively ARMs, albeit with longer reset periods. Rates going up two points will crush affordability even if values stay flat (an optimistic scenario).
0 Reply
Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
8y
@Sam B.
Do you remember the correction in the 1980s? It wasn't really a crash and was too quickly forgotten, unfortunately. I share the view that real estate valuations in Toronto - and a few other Canadian markets - are not sustainable, but it's not unprecedented and there's lots of real estate w/o TO, so I loose little time wondering when the train will derail.
My experience has been that there is substantial difference between an ARM in the U.S.A. and variable-rate financing in Canada. With fixed-rate financing here, if you choose short enough terms (1-3yr), you could (theoretically) crudely mimic that rate bands of an ARM, but the conditions of the financing would be different.
I disagree with your blanket assertion that one would be safer with a U.S.A. style ARM, but it's an irrelevant debate since term-matching-amortization financing is not a reality in Canada. Additionally, the end of a financing term - "the balloon" - does not carry the foreboding and anguish it appears to sway south of the 49th. When your term is up here - or, more typically, three months prior - you simply roll-over the balance of the mortgage to a new financing term with your current lender ... or shop it around for a better offering from their competition. Unless you are a financial train wreck on the path to a mortgage sale or foreclosure, the lender is going to offer a new term.
Ironically, despite your perception of Canadian mortgages being a "recipe for disaster", mortgage delinquency here is less than 1% with defaults being less than half of that.
2 Reply
Claude Boiron
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
8y
Originally posted by @Sam B.:

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.
Agreed, and timing is important, and understanding the likelihood of a correction occurring in one year, two years, five years, or 10 years, is critical to making decision relating to risk - such as how much of a spread is acceptable.
1 Reply
Claude Boiron
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
8y
Originally posted by @Caleb Heimsoth:
@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’ll take the latter every day of the week. Flipping is very risky. No matter where you are.
End rant
Hi Caleb, I don't think you have all the information required to say that the wholesaler took zero risk. What if he went firm (unconditional) on his offer to purchase the property? Seems to me that there would be some element of risk there (not huge, if he got a great deal on the property, but still, some risk).
0 Reply
Claude Boiron
Real Estate Educator, Mentor, Investor · Toronto, Ontario · Member since 2015 · 206 posts · 86 votes
8y
Originally posted by @John Woodrich:

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.
Fair point, John! I would agree that intimate knowledge of the market, plus a complete understanding of the subject property, plus having the experience and knowledge to estimate what can likely be done with a property, are all required to form a responsible opinion of an opportunity such as this one.
0 Reply
Sam B.
Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes
8y
Originally posted by @Roy N.:

@Sam B.
Do you remember the correction in the 1980s? It wasn't really a crash and was quickly forgotten, unfortunately. I share the view that real estate valuations in Toronto - and a few other Canadian markets - are not sustainable, but it's not unprecedented and there's lots of real estate w/o TO, so I loose little time wondering when the train will derail.
My experience has been that there is substantial difference between an ARM in the U.S.A. and variable-rate financing in Canada. With fixed-rate financing here, if you choose short enough terms (1-3yr), you could (theoretically) crudely mimic that rate bands of an ARM, but the conditions of the financing would be different.
I disagree with your blanket assertion that one would be safer with a U.S.A. style ARM, but it's an irrelevant debate since term-matching-amortization financing is not a reality in Canada. Additionally, the end of a financing term - "the balloon" - does not carry the foreboding and anguish it appears to sway south of the 49th. When you're term is up here - or, more typically, three months prior - you simply roll-over the balance of the mortgage to a new financing term with your current lender ... or shop it around for a better offering from their competition. Unless you are a financial train wreck on the path to a mortgage sale or foreclosure, the lender is going to offer a new term.
Ironically, despite your perception of Canadian mortgages being a "recipe for disaster", mortgage delinquency here is less than 1% with defaults being less than half of that.
I'm not old enough to personally remember much of anything from the 80s. Pricing in Toronto currently however is unprecented, that's just a statistical fact.
As far as balloons being rolled over and low delinquency rates go, of course everything is going well now, that's how bubbles work. Everyone's a genius in a bull market. The point is, it's probably not going to continue. And I just don't see lenders clamoring to catch falling knives at >100% LTVs if and when values begin their downward slide. Maybe you know something I don't.
If I said "disaster" instead of "recipe for disaster" then current delinquency rates would hold some weight, but that's not the case. Unless your borrower is very crazy or very stupid, foreclosures don't tend to happen when values are going up by double digits annually. Which is what has been happening, well, apparently up until a few months ago. And when that trend reverses, coupled with a few more rate hikes (a strong possibility if not an inevitablity), a lot of people are going to be those financial train wrecks on the path to foreclosure that you refer to. Particularly the ~~investor~~, sorry, speculative gambler crowd.
Historically low interest rates, historically high house prices, 3-10 year loan terms with 25 year amortization periods, not something I would touch with a 10 foot pole. But hey, I guess if the music is playing...
0 Reply
Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
8y
@Sam B.
Real estate valuations in Toronto are only new levels for Toronto. The pattern of property valuation being disjointed from underlaying economic principals is neither novel, nor unprecedented ... many cities have such periods ... some, like Sydney and Hong Kong still are. In each case, there are other factors - accelerated population growth, geographic restrictions/scarcity, foreign money, etc. - which are driving the divergence. The rocket-ride in Toronto will absolutely come to an end, but whether it goes supernova or simply fizzles out (the theoretical soft landing) remains to be seen.
While I am not in disagreement with your expressed sentiment for Toronto - I personally won't go near it ... and likely won't even following a correction unless it is significant (25% or more), I do find your statements of Canadian real estate financing to be somewhat misinformed - or perhaps distorted as a result of viewing them through a U.S.A. context.
There have been corrections and crashes in Canadian real estate markets before which have left owners underwater, yet they have still been able to renew their mortgage financing ... if significantly underwater, and owner could be asked to bring more capital to the table at renewal, though this is historically rare. The delinquency (<1%) and default (<0.5%, even less in some parts of the country) levels you dismiss are not just current, they are historic. They exist in-part due to qualification requirements that are more stringent than in your country (these requirements were relaxed somewhat in the 1990s/2000s, but have since been re-tightened), in-part because it is difficult to walk away from your obligations, and in-part due to societal norms/expectations.
Now, this is a new generation and mix of mortgagors, who are extending themselves further due to higher prices and lower interest rates (though they still must qualify for financing) so it is possible historic performance will offer no continuity. In the event of a real correction, markets like Toronto (or Vancouver) will undoubtedly see a spike in mortgage delinquencies and defaults, but even a doubling or tripling of current levels would be <3% in a local market ... and I've yet to see any analysis forecasting such a jump.
... Luc, my apologies for the temporary hijacking of your thread.
1 Reply
Pratik P.
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
8y
Who cares what the wholesaler is making? If the deal makes sense to you and you like it, then buy it!!
A lot of investors don't realize the amount of work and marketing dollars it takes to find these deals especially in a tight market like this.
5 Reply
Michael Plante
Deland, FL · Member since 2017 · 2k+ posts · 1k+ votes
8y
Originally posted by @Pratik P.:

Who cares what the wholesaler is making? If the deal makes sense to you and you like it, then buy it!!
A lot of investors don't realize the amount of work and marketing dollars it takes to find these deals especially in a tight market like this.
Exactly
2 Reply
Sam B.
Investor · Indianapolis, IN · Member since 2015 · 270 posts · 217 votes
8y
Originally posted by @Roy N.:
@Sam B.
Real estate valuations in Toronto are only new levels for Toronto. The pattern of property valuation being disjointed from underlaying economic principals is neither novel, nor unprecedented ... many cities have such periods ... some, like Sydney and Hong Kong still are. In each case, there are other factors - accelerated population growth, geographic restrictions/scarcity, foreign money, etc. - which are driving the divergence. The rocket-ride in Toronto will absolutely come to an end, but whether it goes supernova or simply fizzles out (the theoretical soft landing) remains to be seen.
While I am not in disagreement with your expressed sentiment for Toronto - I personally won't go near it ... and likely won't even following a correction unless it is significant (25% or more), I do find your statements of Canadian real estate financing to be somewhat misinformed - or perhaps distorted as a result of viewing them through a U.S.A. context.
There have been corrections and crashes in Canadian real estate markets before which have left owners underwater, yet they have still been able to renew their mortgage financing ... if significantly underwater, and owner could be asked to bring more capital to the table at renewal, though this is historically rare. The delinquency (<1%) and default (<0.5%, even less in some parts of the country) levels you dismiss are not just current, they are historic. They exist in-part due to qualification requirements that are more stringent than in your country (these requirements were relaxed somewhat in the 1990s/2000s, but have since been re-tightened), in-part because it is difficult to walk away from your obligations, and in-part due to societal norms/expectations.
Now, this is a new generation and mix of mortgagors, who are extending themselves further due to higher prices and lower interest rates (though they still must qualify for financing) so it is possible historic performance will offer no continuity. In the event of a real correction, markets like Toronto (or Vancouver) will undoubtedly see a spike in mortgage delinquencies and defaults, but even a doubling or tripling of current levels would be <3% in a local market ... and I've yet to see any analysis forecasting such a jump.
... Luc, my apologies for the temporary hijacking of your thread.
I'm not making a 1:1 comparison, all I did was make a comment implying that that the model up there is more risky. I don't see how anyone can argue that point. A 30 year fixed mortgage, all things being equal, is going to be substantially safer than anything that is typical in CA. Historically our delinquency rates are higher than yours but in the event of a crash, I would expect the relative increase in stress among borrowers to be higher than it would be here.
Even aside from all that I doubt we'll see a soft landing. We've heard all of these arguments before about why city X really is different, and can sustain home price increases far outpacing local incomes indefinitely, and if it can't, well it surely won't go down, it'll just "level out". But it never seems to work out that way, and why Toronto of all places is considered to have such unique and inherent qualities is beyond me.
Also you're misunderstanding my point about valuations in Toronto being unprecedented. You're making it sound like I'm arguing that this has never happened before. No, it has happened before, just not in Toronto, and every time it happens, it ends badly, and that's the point. On a related note, I fully expect Sydney to have a similar fate, and based on recent news we might be seeing the early stages of that already.
0 Reply
Aaron Rowzee
Investor · Lumberton, TX · Member since 2017 · 146 posts · 93 votes
8y
YES! Great post! Investors who are absolute scumbags ask a wholesaler what their fee is, IMO. IT DOESNT MATTER! If the deal works for you and its a "great deal" then what does it matter? Every body is trying to make it doing what they love and are good at. I've done 2 wholesale deals myself making 13k on the first, and 5k on the second. I'm really not a good salesman in the wholesale realm, and I leave it to folks in my area better than I.

I've both met and heard of investors who will demand to see it, and won't buy if the wholesaler is "making more than me doing nothing". I blacklist every. single. one. of those people. They have no business being in business with me or any other quality investor I run with. And in case you couldn't tell, I'm extremely passionate about it. Investors either have the wisdom and character to appreciate a good wholesaler who can supply them with easy and quality leads all the live long day, or they can go be a communist and a thief elsewhere.
And by the way, did you know this guy well? I'm super surprised he didn't do a double close and hide it.
3 Reply
Frank Wong
Real Estate Broker · Bay Area · Member since 2018 · 1k+ posts · 3k+ votes
8y
Luc,
What a great post. Love hearing the different perspective from everyone. My take is that wholesaler's fee should not matter. If you are happy with the potential profit and accept the risk for it. Sure, pay them whatever it is to get the deal. With this much money on the line, I would assume you are confident you can make this flip.
Local markets certainly matter. The risk in this deal may sound crazy to others but not to the others in the market. Especially in this case you are selling on the lower end of the price range. Love that. Probably why you feel so confident about it.
Now if I had the opportunity in my market to do the same deal. I would jump all over it. Why because if I crunch the numbers correctly and put this in my area. I would have 10+ buyers fighting for this house and it would be gone in 5 days.
Now, this is assuming I am in the same market that I am currently in and experiencing the last 3 months. Could markets be topping sure, could they continue to go up sure? Anything is possible. I don't have a crystal ball and no one knows the future. So many people have told me the Bay Area has topped out in the last 3yrs, LOL. I am not saying there won't be a correction but the problem is, when? No one knows.
If you know your risk and managed it. Sounds like a killer deal. Good luck.
2 Reply
Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
8y
Its not about the wholesaler fee as much as the risk of the flip. From the sellers perspective they left 80K on the table on a $500 sale. Which is 16%. They could have listed with a realtor for 6%. So they are out $50K. Maybe they needed the cash fast or whatever. Or maybe it was a little old lady swindled by an unscrupulous wholesaler. You never know.
0 Reply
Doug P.
Investor · Kitchener-Waterloo, Ontario · Member since 2008 · 1k+ posts · 1k+ votes
8y
@Account Closed There is an endless supply of sellers who would happily take a loss so as not to have to deal with a realtor. Old or young, in desperate need to sell fast or not.
I love how you have no idea about this situation but you assume a little old lady was swindled. LOL!
2 Reply
Account Closed
Member since 2018 · 11 posts · 2 votes
8y
@Luc Boiron I love this mentality because in reality its pretty hard for us wholesalers to find these deals and buyers like you make the process less frustrating. Hope you get the awesome ROI you seek!!! 😃
1 Reply
Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
Originally posted by @Pratik P.:

Who cares what the wholesaler is making? If the deal makes sense to you and you like it, then buy it!!
A lot of investors don't realize the amount of work and marketing dollars it takes to find these deals especially in a tight market like this.
I agree here. Flipping is easy compared to trying to market and land a deal. Putting money into a property, at least there is a property there. Putting money into marketing there is nothing but hopes and dreams. I wish I was better at generating deals!
3 Reply
Account Closed
Investor · Portland, OR · Member since 2017 · 182 posts · 115 votes
8y
@Luc Boiron @Jay Hinrichs 100k split 2 ways--- 50k each, after Canadian Taxes--- 30K? I'd rather stack groceries then deal with that amount of risk for that low of money. Unless you are the "Enjoy the journey" type of guy.
This has been my problem in the past--- finally learned to include the "tax, risk, and time" value into the equation. Changed my world.
0 Reply
Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
8y
Originally posted by @Doug P.:

@Account Closed There is an endless supply of sellers who would happily take a loss so as not to have to deal with a realtor. Old or young, in desperate need to sell fast or not.
I love how you have no idea about this situation but you assume a little old lady was swindled. LOL!
I dont know the situation here for sure. But I do know that people are swindled all the time by wholesalers. I have even attended sales pitches from seminars that teach exactly that!
0 Reply
Luc Boiron
OP
Specialist · Toronto, Ontario · Member since 2016 · 564 posts · 425 votes
8y
Originally posted by @Account Closed:

@Luc Boiron @Jay Hinrichs 100k split 2 ways--- 50k each, after Canadian Taxes--- 30K? I'd rather stack groceries then deal with that amount of risk for that low of money. Unless you are the "Enjoy the journey" type of guy.
This has been my problem in the past--- finally learned to include the "tax, risk, and time" value into the equation. Changed my world.
I think I can make between $100-$200k on this. So even if I split it 50-50 with a partner, I could potentially make up to $100k on this. Alternatively, I could use my own money for the equity required above the 80% LTV private first mortgage I intend to get. I could also borrow the equity I need instead of sharing the profit, which would slightly increase my risk but could substantially increase profit.
This is an additional deal, not my only deal for the year. This is not choosing to do one deal vs stacking groceries - I expect to do at least 20 deals this year. I would be very happy if I could make $100k+ on each deal, I would be very happy, but that isn't the case. In addition, my expected profit includes completely hiring out the reno - I'll only be on the job site checking in a couple times a week.
Also, on the tax side, we have something called a CCPC in Canada (Canadian controlled private corporation). If you are generating active business income, up to $500k per year in profit, your taxes at the corporate level are only 13.5% in my province.
This means if I made $100k profit in the corp, left it in the corp, I would only be taxed $13,500 that year, and could reinvest $86,500 of it. When I do eventually take that amount out of the corp I would be partially taxed on it, to the tune of about 30%. In the meantime though, I only take a small amount out of the corp each year to take advantage of the lower marginal tax rates at the lower income levels (pay myself $40-70k per year). Doing an extra property like this one would just be extra profit, I wouldn't take it out, and would leave it in the corp to keep as much as possible to continue growing.
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Kent Chu
Hayward, CA · Member since 2016 · 13 posts · 6 votes
8y
If you can’t stand the wholesaler making 80k while you make 100k then you are not a rational investor. Sure the wholesaler isn’t taking any risks but he found the deal and wants to be compensated.
2 Reply
Marleny Gutierrez
Wheeling, IL · Member since 2018 · 4 posts · 0 votes
8y
@Luc Boiron lol
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Josh Collins
Investor · Woodbury, MN · Member since 2016 · 90 posts · 72 votes
8y
@Account Closed
@Luc Boiron - I'd be curious to know what your expected time to flip will be. I think that also tells a lot about the overall risk associated with the deal.
@Account Closed What if he did the rehab and sold in 4 months? Then his return jumps to 36% annual ROI assuming he can keep his money moving into a new house every 4 months. I don't know if that's true or not but the annual ROI on his investment (how I think most people are comparing apples to apples on BP) using the shorter timeframe is much higher than 12% (13.89% actual). Just something to consider. In the end, it gets harder and harder to invest larger amounts of money on deals so making $100k in 4 months might be a pretty amazing return on his $720K. Also, average houses in the area are approaching $1.3M range so this seems low-ish end (I can't believe I just wrote that a $1M home is low end!). That seems like the OP is set up to fix and flip this in short order. Would an annual return of 36% change your mind on the deal? Maybe, maybe not. I was initially with you on your thought process that 12% seems too skinny of a deal. But if I put my money to work and I have a shot at a 36% annual return, I would be willing to chase a little more risk. Just a thought.
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