How do relators make money when you do assignment to and instant equity exchanges?

Question

I'm using no money down strategies to build cash reserves. I read that real estate agents are key to your business so I want to make a win win situation for someone who is willing to work with me.

When I include realtors in my strategy targeting assignment to buyers and instant equity exchange buyers, how do they make money out of the profit I build into the deal while not using my own money?

Thanks for your time. Please be specific in your answer. I have experience working for and with realtors before, I know they prefer retail buyers over investors besides the fact that lots of investors offers get rejected because we are in the business of making money by buying low and cash flowing, or selling for a profit.

Chris Martin · Answer

I think brokerage is the 'no money down' plan that fits best for the OP. And you can work with brokers and do win-win deals all day. And split commissions, etc., and not really worry about deals that are not great, etc.

Carl Schmitt · Answer

I'm with Steve!  With 500K houses, you're talking 10k in commission, for one side.  If you can find 4-6 deals like this a month, that you're the listing agent on, sell to an investor.  Then you let the investor list it with you again on the resale side.  That's a healthy month if you ask me.

Steve L. · Answer

The problem with a 500k house... most rehabbers/landlords aren't excited about that price range.

I cannot make very many deals cash-flow at 500k as a landlord (unless it rents for 10k - maybe 10-15 units?).

As a rehabber I would need it to be worth 650-700k minimum to make a 500k purchase pencil.  Who would I be able to sell too who can qualify for a 700k mortgage today?

Free2Rhyme - from the sounds of your strategy why don't you just become a real estate agent.  You'd make more going that route then trying to "wholesale" this type of inventory your suggesting.  You don't need any money... just buyer's... and with time/effort you can find retail buyers for free.

Peter Haymond · Answer

Correct. Volume as in 4-6 properties per month. I'm also working with other investors to make this happen as a business. That's why I suggested if I target areas such as Danville, CA 500k plus house with little equity is still more attractive to the agent then some property in San Leandro.

Peter Haymond · Answer

Thanks everyone for your replies. In CA brokers can be compensated as Steve suggested. And Steve that's exactly what I was going to do except I just plan on wholesaling everything until I can afford a down payment, taxes, maintenance etc.

Chris Martin · Answer

Steve, this will certainly work. Selling broker gets 100% of the commission and the OP 0%. I may be missing something, but I think the idea was to somehow include a broker/realtor into the mix and for the OP to get compensated on the deal. The OP stated "using no money down strategies", which implies no out-of-pocket earnest money, that led me to believe the OP want's to be compensated for finding the buyer.

Regarding "Or if the agents know other investors, sometimes I will pay them a fee to send me the buyer" this may be a CA vs. NC difference. If CA brokers can compensate the OP (the OP didn't claim to be licensed) then this may be the best way to go.

Steve L. · Answer

Here is how agents typically get paid on my deals.  I have a couple agents I have done 10+ deals with in the last 2 years and many at 5+.

Agent calls and tells me about a deal.  I look at it, tell them what I am willing to pay and they represent me on the offer.

If I plan to wholesale it, they get paid by the original Seller and have no idea I am planning on selling it.

Or if the agents know other investors, sometimes I will pay them a fee to send me the buyer.

Chris Martin · Answer

I'll try to be specific in my answer, per your post. Each state is different in how they regulate various business practices. Your best bet is to fully understand your state laws or check with your attorney. In NC, the 'instant equity exchange' method as I understand it (see second URL link below) would be considered brokerage. In many states, licensed brokers cannot compensate any unlicensed person or entity (last link). So working with brokers on 'assignment to buyers' deals, unless you are working for free, would be unpopular with NC brokers. The bottom line (applies to NC and may apply to other states, you need to check) is brokers will not work with you on deals where your fee resembles a commission.

http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_93A/GS_93A-2.html NC broker definition
http://howtowholesalemls.blogspot.com/2009/09/magic-of-instant-equity-exchange.html instant equity exchange as I know it
http://www.ncrec.gov/bulletin/vol15-2bulletin/sharing_brokerage_fees_with_buye.htm licensed brokers cannot compensate the unlicensed

Carl Schmitt · Answer

I think to attract a good agent, you're going to need to be doing volume.  Like you said, it's probably not going to be a big check, but if you get 4 a month, they add up.  That's basically the only option in the market I'm in.  With an average home price of 170K, checks aren't huge.  It may be tough in CA because of the prices you spoke of. 
Good Luck!

Peter Haymond · Answer

You're right. Agents make more commissions working with investors who buy more properties then picky home buyers who can't make simple decisions. In my opinion the agent would have a win win situation if they would bring in end buyers (like you stated), which would really help me as an investor because I already have enough on my plate working a part time job and going to school full time. I'll probably just have to find a realtors minion to work for me because the commissions won't be a lot but will be frequent and occur monthly.

I remember working for a realtor out in Danville, California (Keller Williams) where he specialized in new property that was at a minimum of $500k or more so he would bank $15-$30k on closed deals every month depending on the property. But he wouldn't want to work on my deals most likely because he can get higher commissions elsewhere.

Thanks for your help.