Wholesaling to retail buyers

[Kellie Harden]

Wholesaling to retail buyers

Scenario #1

This is a scenario that I read in a book recently. You are a wholesaler that has found a property that is worth $100,000. You have the seller under contract for $45,000 and you sell it to your investor for $50,000 giving you a $5,000 profit. Yes, this scenario makes a lot of sense, if you rinse and repeat 10 times that is $50,000 no headaches.

Scenario #2

However, when doing a Retail Buyer Wholesale Transaction (meaning the buyer wants to live in the property and rehab it), this same $100,000 property under contract for $45,000 you now have a Retail Buyer that is interested in the property. Rehab of the property is going to cost $20,000 ($50,000 + $20,000 = $70,000) At the end of the rehab, the retail buyer will have his or her dream home within their budget of $100,000.

Next they agree to purchase your interest in the property and take ownership of the property for $75,000 (you marked it up $5,000 for your fee, they already paid the seller $45,000 so the balance is now $30,000 = your additional profit.. In essence, the end buyer needs to get a loan for the property if he or she doesn’t have cash. Hypothetically if you hold a promissory note for $30,000 with the terms that you will be paid $600 per month for 50 months by the end buyer, 10% interest in addition to a $600 per month payment is $645.37 per month. On a $30,000 loan, for 50 payments of $645.37 is a grand total of $32,268.50 as long as the buyer doesn’t default. If they default the rehabbed property is your to sell or re-rent.

The End buyer is out of $50,000 for being assigned the first contract.

The End Buyer is out of $20,000 for the repairs of the property.

The End Buyer is out of $30,000 for purchasing your interest in the property.

The End Buyer is out of $2,268.50 in interest payments.

The End Buyer remains just below $102, 268.50

As the Wholesaler, you are up $5,000 from the original wholesale deal.

As the Wholesaler, you are up $30,000 plus an additional $2,268.50 in interest payments.

As the Wholesaler, you are up just above $37,268.50 on this deal.

In this scenario, if you had 10 properties with the same scenario that's $77,444.40 per year or $322,685.00 on 10 properties as long as no one defaults. I am sure somewhere here my math is a little off but bare with me. Would you prefer scenario #1 where its a quick rinse and repeat or scenario #2, which is a little more headache but a lot more cash flow? No brainer.