First wholesale deal

[Kimberly Lowe]

Hello everyone! I am brand new to Bigger Pockets and to real estate investing. In fact, my husband I may put our first contract on a home today with an offer well below the value in hopes of transferring the contract to an investor for a 'finder fee'. Any advice for us before we do it?

[Devin Beverage]

Welcome to Biggerpockets and real estate investment, Kimberly! I'm a newbie as well, and am also doing wholesaling. I'm in the process of setting up my wholesaling business from the ground up. Consider telling the story of how you came across your first deal and the process you went through getting it under contract! 

Congratulations on getting that first deal under contract. As you mentioned your next step will be to get that contract re-assigned to an investor and get paid. It's good that your contract is for well below the value of the house. First, let's ask a few questions. 

Does the home need any repairs, or is it completely updated? 

You may or may not have heard of the 70% rule, which means that (as a general rule), the ARV (after repair value) of the home x 70% (.7) - costs of renovations/upgrading = the most your buyer (investor) should be paying for the property. You want to make sure that your price is right before you start marketing the property to investors so that they don't discount you as "just another wannabe wholesaler."

A $100,000 ARV home with $15,000 in estimated rehab costs should not be bought for anything more than $55,000. That means that you want it under contract for $50,000 or so, because you want room for a good assignment or finders fee. Make sure those numbers work, because that is what your buyers are looking for.

Where are you getting your buyers? 
Well, you've got to find them somewhere. THere's always the marketplace here on BiggerPockets, which (I could be wrong but believe) you can access as a "Plus" member. In addition, you can look at your local REIA meet-ups to network and build a buyers list, as well as market your current property. you will want to have comps prepared as references to prove the ARV of the home, and actual estimates from contractors for repair costs would be very helpful and professional, although while some buyers will consider this step requisite, others may not even care. Regardless of how far you go with accuracy, I would prepare a good presentation for your property, meaning a nice portfolio/folder with the property, pictures, some briefs on comps, and a delineation of what the ARV is, price to the buyer, estimated repair costs, and maybe some features of the property. I haven't seen a lot of people do this but I feel like it's more professional and impressive.

Does everything with your contract check out? 

To do a reassignment for a finder's fee, you'll need to have a clause in your contract that says you can do that! This is as simple as the section that says "buyer," being followed by "or assigned," meaning either the buyer (you) are purchasing the property or whoever you assign it to. 

Have you made your earnest money deposit? 

You have to make your earnest money deposit with your real estate attorney or the title company you are using. Hopefully you put down something small like $10, to simplify things. 

How much will your finder's fee be? 

Again, you'll want to make sure your numbers work out. The 70% rule isn't a hard-and-fast law, but it's what the majority of investors I've spoken with go by. Some have other methods, and each market differs for sure. However, you want to make sure you're taking care of your buyer, because if they don't feel it's a deal, you're going to be holding on to that property for a while, potentially going past your "inspection period." $5,000 is a pretty fair fee. If you go up to $10,000 or more, you may want to consider double-closing instead of reassigning, because some buyers will get frustrated with you for making so much on the deal. I don't agree with this, as long as the buyer is making their fair share, but some will scoff at deals and turn away because of an outrageous assignment fee. 

Speaking of which, how long is your inspection period? 

This should also be outlined in your contract, and indicates how long you have to find your buyer. If you are unable to find a buyer, you need to cancel the contract before the inspection period ends. Via formal letter you can notify the seller that you are unable to purchase the property, legally breaking the contract. Be careful. Anyway, basically, your inspection period indicates how long you have to find a buyer. 

If I think of anything else, I'll let you know! Let me know if you have any questions. 

Good luck, and again, congratulations!