Is $5k for an Assigment Fee Too High?

Question

Is $5000 too much to ask for an assignment fee for a duplex if my:

ARV $81,000
Repairs $20,000
Purchase Price $13,500 
Closing Cost  $8,100
Estimated Profit  $39,400 or Estimated Monthly Rent $1100-$1500

Now this doesn't include any holding costs such as mortgage pymts, taxes, insurance, and utilities.  Please let me know what you think.

Account Closed · Answer

Are you buying?

Does the deal make sense with all the costs and other assumptions? If there was no fee but the purchase price was higher then would you buy?

In that case then I would say the fee is fine. Granted I would look at things to see if there is anything else going on that I did not expect.

The math does not lie if the deal makes sense. What can be an issue is the hidden assumptions.

You also have to be clear about the fee and if it will otherwise block the deal. If the deal can not be funded because of an assignment fee then there is a problem.

Looking at the numbers, what is in the closing costs line item? Is the assignment fee in the $8K or are you saying there are $8K in closing costs without the fee? That seems like a very large number given the sale price. Are there a lot of points in the closing costs? Then it might make sense.

John Corey

Account Closed · Answer

You are flipping or otherwise passing the deal on. When trying to estimate the holding costs for a possible future buyer you should focus on the obvious. Monthly mortgage costs, taxes, utilities. Just the stuff that is likely for most any investor who you might sell the deal to. You are not trying to be super precise. You just want to know that the deal is a solid one.

When they look at the figures and see that you have put in most everything that is reasonable they will feel you know your business. They will still use their numbers but they will trust you more when you bring then a second deal.

John Corey

Lenox Ramsey Jr · Answer

Thanx again REI.  You provided so much insight and I appreciate it.

Account Closed · Answer

Ask an attorney.

If you close deals at a title company there could be a standard form they use.

There are other investors who can share what they have.

You can read books and other materials where an assignment is discussed and forms are shown.

Best to pay for a valid contract that will work in your state that you obtain from an attorney. After than I would say best would be a form that an investor has used before in your state without issue. Be careful about being too cheap with legal documents. You want a document that will work and does fail you when you need it to stand up in court.

John Corey

Lenox Ramsey Jr · Answer

Ok I see what your saying...that makes sense so let me understand...most investors look for deals that are 65% ARV or less.

Next question:  How much do you think an attorney would charge to create an assignment contract?

Lenox Ramsey Jr · Answer

Ok I need to double check my closing cost estimation but lemme ask how would you estimate the terms of monthly mortgage payments? I know of a mortgage calculator I can use but what terms would be best for estimating holding costs?

Lenox Ramsey Jr · Answer

Question though...How would you then present the offer to investors?

Account Closed · Answer

You need to talk to the investors and see what they look for.

MikeOH is pretty clear how he reviews a property. If you had a deal that was in his market and fit his formula then you have a deal worth presenting. He is a buy and hold investor so his criteria is more geared to a specific segment.

Other investors might like to buy, fix and resell. They will focus on a certain style of home and have a profit margin they expect when the project is all done. One I know wants to make 20% and he likes a specific type of home. He is very hands on and enjoys certain work.

If the buyers are to be repeat customers then you need to understand what they like.

Is that what you wanted to know or are you asking something different?

John Corey

Lenox Ramsey Jr · Answer

Thanx for the help its greatly appreciated

Account Closed · Answer

The closing costs could be a lot lower depending on what you put in that line item vs. what the buyer needs to deal with. If the seller is paying the closing costs it matters little. In that case I would show the numbers differently as it impact the profit figure you are reporting.

You have no holding costs but show repairs are needed. There could be a fair amount of money spent while holding until a future resale or future refinance.

I would not be put off by the $5K but I suspect you will find many people want to shave it down. It really comes back to the profits the property will produce.

As MikeOH says he could pay a fee if the property fit his criteria. Hence what the fee is really is less of an issue than what the deal looks like.

You are showing numbers that imply lot value is a large percentage of the purchase price and the repairs are a very large amount relative to the present price. That sometimes turns off people who view such a deal as a rebuild from the ground up. Still the numbers reported look profitable.

The area can make a big difference in the ability to sell this on.

John Corey