How do you guys respond when a potential cash buyer asks what you picked up a deal for? He will see it eventually on the HUD1 (except when using a double close) but asking early in the process smells of negotiating tactic to me.
Just be honest. If it’s a good deal for the buyer it shouldn’t. Make sure to have several buyers in case you do get pushback. That way you can let them know you can take it to someone else. That usually takes care of the issue.
So what's the problem? Of course it's a negotiating tactic. So what. Are you afraid that if you tell the buyer what you got it for they will somehow have leverage on you? If that is the case, then you aren't very strong (or feel guilty) about your sale price and profit.
Your Asking Price is what it is based on the value of the property...not what you got it for. If your buyer questions your profit, that's not up to them to decide. The issue should be "is the AP correctly set". If it is, then stick to it. If the buyer focuses on your profit, tell them they should have bought it before you did at the price you got it for...and, then did all the rehab themselves.
Bottom line is this. Don't ever try to rationalize your profit...only the sale price. The sale price is the ONLY thing that matters.
Yes, it's a negotiation tactic. I read a book called, "Never Split the Difference." In that book, he calls this a Black Swan. It's a piece of information that when discovered drastically changes the situation. If you tell him this information, it gives him an upper hand and takes away some of your power. I would never tell him this.
If this is a good deal for him, he should do it regardless of what you're making. After the fact, if he learns you made buckets of cash, he might feel disappointed in that he could have gotten the property for less. Well, he needs to deal with that, and maybe he's not a good person to go to with future deals.
Yes, he will eventually find out when it comes time to close - unless you do the double closing. Personally, I don't care if they find out. Based on the parties involved, if my fee really was huge, I might do a double closing. People do get jealous. But if it's a reasonable fee, then I don't care if they know.
You can disclose it to him if you'd like but that does not dictate the market value of the deal. What you're offering still should be a steep discount of whats available on market.