What costs are associated with a wholesale deal?

Wholesaling
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What costs are associated with a wholesale deal?

Mitchell Rusten
Rental Property Investor · Excelsior, MN · Member since 2019 · 21 posts · 4 votes

I am looking at getting started in the exciting world of real estate, and after exploring many of the pros and cons I think wholesaling would be a good place to start. One of the questions I have had a hard time finding answers to, however, is exactly what costs I can expect to have when closing a wholesale deal. The only real cost I can anticipate at this moment is ernest money in the $100-1000 range, although I know I should get this back after the deal closes. The ones I can't put my finger on are things like appraisal fees, contractor quotes, anything I might have to pay a title company for an assignment deal (if anything), and how much I should expect to pay on a double-close deal. Do you guys pay for an appraisal/inspection, or do you have buyer's handle it as part of their due diligence? If you cover it yourself, do you tack it on to your asking price? Also, do you have to pay a contractor(s) for a quote, or are they typically willing to do it for free? Also, if you can think of any other non-marketing costs I should expect, please let me know!

Bonus question: any tips for choosing a suitable title company? 

Thanks for the help!

TLDR: How much capital should I have set aside to help me get through closing a wholesale deal?

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y

    If you cannot unlicensed broker the deal then you will need the money to close on the property once you have represented yourself as a "buyer".

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  • Mitchell Rusten
    OP
    Rental Property Investor · Excelsior, MN · Member since 2019 · 21 posts · 4 votes
    7y
    Originally posted by @John Thedford:

    If you cannot unlicensed broker the deal then you will need the money to close on the property once you have represented yourself as a "buyer".

     Thank you for your response. Do you mind going into further detail about what you are talking about here and roughly what the costs would be? From the sound of this you are talking about a double-close in which I momentarily take ownership of the property and would either have to get a transaction lender or set up two escrows and have the buyer fund the escrow for my end, in which I would lose out on the closing costs of the first deal, correct?

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y
    Originally posted by @Mitchell Rusten:
    Originally posted by @John Thedford:

    If you cannot unlicensed broker the deal then you will need the money to close on the property once you have represented yourself as a "buyer".

     Thank you for your response. Do you mind going into further detail about what you are talking about here and roughly what the costs would be? From the sound of this you are talking about a double-close in which I momentarily take ownership of the property and would either have to get a transaction lender or set up two escrows and have the buyer fund the escrow for my end, in which I would lose out on the closing costs of the first deal, correct?

     If you cannot assign the contract are you prepared to take ownership?

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  • Mitchell Rusten
    OP
    Rental Property Investor · Excelsior, MN · Member since 2019 · 21 posts · 4 votes
    7y
    Originally posted by @John Thedford:
    Originally posted by @Mitchell Rusten:
    Originally posted by @John Thedford:

    If you cannot unlicensed broker the deal then you will need the money to close on the property once you have represented yourself as a "buyer".

     Thank you for your response. Do you mind going into further detail about what you are talking about here and roughly what the costs would be? From the sound of this you are talking about a double-close in which I momentarily take ownership of the property and would either have to get a transaction lender or set up two escrows and have the buyer fund the escrow for my end, in which I would lose out on the closing costs of the first deal, correct?

     If you cannot assign the contract are you prepared to take ownership?

    From my novice understanding, and please correct me if I am wrong, this is covered by an inspection period and often wholesalers will include a clause in their contract regarding a financing contingency. From what I understand, if you do your due diligence prior to signing a contract, you will have a deal in place that has enough meat left on the bone to interest you list of buyers. If done properly, I shouldn't have to back out of a deal in the event you can't find a buyer. I am not interested in signing a deal I don't wholeheartedly believe I can close on one way or the other, because it will create a headache for me and the seller, who I am trying to help out of a bad situation. 

    All of the above being said, I understand bad and unforeseen things happen and it isn't far from a certainty that I will do something wrong early in my career. My intent is to have language in a contract that protects me from having to close on a deal that I have not been able to make profitable. It would be a last resort, but available if necessary. 

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  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    7y

    I hope you let the seller know this before they sign a contract with you

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  • Mitchell Rusten
    OP
    Rental Property Investor · Excelsior, MN · Member since 2019 · 21 posts · 4 votes
    7y
    Originally posted by @John Thedford:

    I hope you let the seller know this before they sign a contract with you

    Certainly. It would be wrong from a moral standpoint and, by my understanding, probably incorrect from a legal standpoint to try and mislead the seller in any way. I am interested in being in real estate for the long haul, and the quickest way to jeopardize that would be to practice in an illegal or unethical manner.

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  • Lydia R.
    Investor · Austin TX · Member since 2016 · 1k+ posts · 2k+ votes
    7y

    @Mitchell Rusten You will also need a substantial marketing budget to find deals in the first place. That will be your largest expense. As for other costs you will have EMD which can range from $100 to a few thousand. As for inspections/appraisals they arent necessary in a wholesale transaction so if you decide you want them done then you will have to pay for them. If you cannot estimate repairs accurately you will want to pay a contractor to look at the property and give you an estimate. Also if you cant get accurate comps you will to pay a realtor to run comps on the property for you so you can determine ARV.

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  • Mitchell Rusten
    OP
    Rental Property Investor · Excelsior, MN · Member since 2019 · 21 posts · 4 votes
    7y

    @Lydia T.

    Thank you Lydia!

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