I have a property under contract. Originally, I planned to flip it myself for my first flip. However, I did reach out to a random wholesaler that I receive emails from on a regular basis, who is local just to see what he could sell if for wholesale Incase I run out of time to do the flip myself. He gave me the figures, and said we would split the profits 50/50.... this seems somewhat high to me, being that I usually sell houses for 6% commission on the market as a realtor.
My question is, when doing something like this, do wholesalers generally split it 50/50 in profits, or what is the standard split or commission?
He seems extremely trust worthy and honest, and seems to want to help me learn this side of real estate (my expertise are on market real estate transactions)... that said, I’ve been burned by many super nice guys who seem to want to help me, and since I’m new to the wholesale side, I’d love some reassurance the 50/50 split is normal, or warn me to go back and renegotiate the profits if I go the wholesale route.
Your deal with him is negotiable. All fees must pass through your broker (at least in Florida).
@Sterling Satterfield ,
I don't know your numbers on this deal, so I can only guess based on the situation.
First, you purchased this property at a discount so you could fix it up and make a profit. Now you're looking at this and you're worried (or certain) it's going to be a loss since you can't get the work done in a timely manner. You're trying your best to avoid a loss, or at least losing too much. This is a bitter pill, but if it describes your situation, you need to swallow it.
You need to understand how wholesalers and realtors differ. Wholesalers generally work with people looking to sell their property quickly for whatever they can get. It is understood that speed and possibly convenience (no need to fix things up) is more important than price. Agents generally work with people who are looking to sell for the best price possible, which can take more time and effort. You have to decide which is more important - getting the best price, or getting out quickly.
What's your best exit strategy at this point. For fun, let's assume you purchased the property for $200k and your costs to date have been $2k.
Option 1 could be working with a realtor. Let's say that they're able to sell the property for $215k, but it will take three months, and a little bit of cleanup work to get it sold. Maybe you spend another $5k in holding costs and minor cleanup/repairs. Your costs are now $207k. You sell for $215k. Commission is $12.9k. You're down $4.9k three months down the road.
Option 2 could be working with a typical wholesaler. They can sell it to an investor for $200k - what you paid (possibly from a wholesaler). They want to make a minimal profit, so they agree to offer you $198k. They sell it for $200k, make a $2k profit, and you lost $4k (including your holding costs). You're out less money, and your out quickly.
Option 3 could be this wholesaler willing to split the profits 50/50. If he also found a seller for $200k, there would be no profit to split. He would walk away with nothing, and you'd have only your $2k loss for your holding costs.
I think you need to tweak these numbers based on reality. What are your costs to date? What are your ongoing holding costs? What could it be sold for? Do you know other investors you could go to directly rather than going through a wholesaler, or do you need to rely on the wholesalers (hopefully large/strong) buyers list? Armed with that information, make the call.
Hell with 50-50.
You know what the hardest part of REI is?
Getting the contract signed.
You know what the most valuable part of REI is?
Getting the contract signed.
You know what it takes to be successful at REI?
Getting the contract signed.
You offer him 20%. If he says no, you say buhbye
50-50, get the frog out of here!
@Sterling Satterfield A 50-50 split is highway robbery. There are a lot of people out there that ask for a 50% split but if Im bringing the deal and the other person is just sending out an email...50/50 isnt happening. I think you have to decide if you want to flip the house yourself or not. If not then you wholesale it to someone who wants it. If you have it under contract for a great price then close on it yourself and just put it on the MLS and make a profit.
If this is your first wholesale deal the 50-50 is not a home run, but happens in the beginning at least once to most .
After doing that kind of deal once you may get a little more greedy. If you simply passed on the lead 50/50 is super good if the whole seller did all the work.
berry, to clear things up, I am a Realtor, however, I want to start dipping in and trying to flip a property. As a realtor, I have always just stayed on working with buyer/sellers and a little commercial. Ive never done a flip. I got this under contract to flip. The numbers aren't tight, there is plenty of profits to be made. I have the property under contract at $175k, I figured ARV potential of $270k, with $30k-$40k into it. The reason I am looking into the wholesale route is I just had my first child a few days ago & I run a team of 5 buyers agents and just trying to make sure I dont take on to much and can spend the time with my new son! So, Im not sure what the wholesaler can get for it, but lets say he gets $190k, we and we go 50/50, wed each get $7500. Thats the part where im considering, if I could get more than 50% it doesn't seem a bad route to go, however if 50/50 was normal that I can consider my options accordingly.
from the sound of it and responses from the other guys commenting here, 50/50 is high & it should be closer to a 80/20?
On a side note, if I go this route, the wholesaler would be fronting all of the money involved which maybe change some of your minds on that 50/50 part.
@Sterling Satterfield I think I might be misunderstanding you here. There is no money for the wholesaler to front. If you are the one with the property under contract all the wholesaler is going to do is find an investor who will buy the property. Thats why the 50/50 split here is so ridiculous. You have done all the work and gotten the property under contract and the wholesaler is risking absolutely nothing and is potentially getting half the profit. A wholesaler, in this particular scenario, is bringing you very little value. You could just as easily call up some buyers and say hey do you want this house at 190k. Congrats on the new baby!!!!
Thanks Lidia!! What I mean by he’s fronting the money; he said he’d essentially purchase it with his cash; then resell it a day later to his investors. So not wholesale the contract, but the property? Sorry if I’m not making much sense, I literally hadn’t even heard of wholeselling real estate until a few days ago! Lol so my terminology and explanations are to the best of my understanding.
He did say he could likely get more out of it, but I’m going to aim low on numbers to be safe. It’s unlikely I find my own buyer, as I never took time to help cash investors on flips because i stuck to the mls, and there aren’t any good deals on the mls, so I generally sent them elsewhere. This property needs way to much work to sell to a traditional buyer getting a loan.
It sounds to me though, your definitely thinking I should either renegotiate split, or, try to find my own buyer and try the traditional “wholesale” and just sell the contract.
Thanks for your help! I’ve never done a forum before, but, everyone I ask at my brokerage ends up offering to go in on it instead of give advice, so I needed some unbiased opinions, haha! Glad these forums actually work! Truly appreciate it!
I’ll put the money down for 30% ;)
@Sterling Satterfield Im even more skeptical with that information. I dont believe your wholesaler is going to actually buy it from you, I think hes going to double close. I would strongly suggest you do 1 of the following
A. Buy the house yourself, and put it on the MLS as is. Cash only, wont qualify for financing. I can almost guarantee that you will get offers from investors. If you have the money to close on this yourself and dont mind tying up the cash for 2 weeks (or less) then go for it.
B Find your own cash buyers. Its so much easier than you think. Especially with you being an agent. PM me and I will point you in the right direction. You should be maximizing your profit on this deal! You are going to have to put this kid through college in 18 years lol 😆