HOW MUCH CAN YOU CHARGE FOR A WHOLESALE FEE? WHAT IS POSSIBLE?

Question

I've heard people say 10% of the expected profit and others say 5000 is the most you can charge. Just trying to gain some better insight on the matter. Thank You.

J Scott · Answer

As long as it's a good deal for me, I'm happy to pay whatever the wholesaler wants.  I don't care if the wholesaler is making $1000, $10,000 or $100,000 -- as long as the deal I was getting was worthwhile to me.

Now, that said, if I knew the wholesaler was making a lot of money (more than I'd be making on my side of the deal), I might negotiate harder, but that's more a negotiation strategy than being bothered by the fact that the wholesaler was making a lot.

Aaron Mazzrillo · Answer

There is no ballpark selling price. In the last few weeks, I wholesaled a $450K house for $460K which has an ARV of $580K-ish. I just closed one that I paid $78K for and sold for $90K ($12K WSF) and it was worth $135K-ish. I've got another in escrow now that I paid $205K for, wholesaled it for $225K and has an ARV of $325K-ish.

I fully expect my retail buyers to sell all of these at or for more than I estimated the ARV. I always check back to see what they sell for and I've gotten pretty good at underestimating values.

I bought one last month that I paid $90K for and it is easily worth $225K. I could have gotten $150K for it from a landlord guy who owns a few in that area. The tenant has been there 35 years and I like to help people get out of ruts they are stuck in so instead of wholesaling it, I closed it and the same day served him with a 60 day notice. He started freaking out. Yesterday he called and said he asked his parents (he's in his 50s) if they could lend him some money. He said he called the seller (his landlord of 35 years) and asked what I paid. He then offered me $100K and said he doesn't know anyone that makes 10% so quickly and I should be happy with that. On Monday I'm going to call him back and tell him I'll gladly accept his offer if he ups it to $150K. I don't like people telling me how much I should make. Also, I'm kind of a dick and I really enjoy evicting people. I kind of wanted to be a lawyer and since that is never going to happen, evicting tenants is as close as I get to playing lawyer and definitely cheaper and less work than law school, so I have a lot of fun with it. Besides, if they end up in eviction court, there's a really good reason so I never feel bad about it. I don't do cash for keys. I don't reward bad behavior with financial windfalls.

I closed a deal last year and took title just so I could evict the woman out. Once I got the eviction, I wholesaled it to a rehabber. Well, technically it wasn't a wholesale because I had already closed it, but I never saw the inside. I could have easily sold it with tenant in place, but I would have missed the old dude who walked perfectly fine at his house.. or should I say my house, when I went to visit him to serve him, but suddenly needed a walker the day he showed up in court. Those kinds of antics makes me laugh so hard. It's better than a comedy club the excuses lame tenants.. squatters.. come up with as to why they should be allowed to continue freeloading in a house. I also like getting judgements on people. It takes a while, but eventually I get most of my money back.

On the one I paid $205K for and wholesaled for $225K, originally I was offering to pay $210K, but right after I found my buyer (a guy I've sold 4 deals to recently) at $225K and before I opened escrow, I asked the seller if he would take a small discount because the house was in much worse shape than he told me (my buyer went to look at it and told me). I was hoping to get $10K off, but he agreed to come down $5K. My buyer was already good at $225K and had no idea what I was paying. I only asked for the discount because I didn't really want to make $15K on a good retail house. I thought I deserved a little more and I want to buy furniture for my vacation home so I got $5K just for asking. So instead of making $15K, I get to take home $20K. (I would have gladly closed at the $210K, but one never knows what might be given if one just asks.) And you can buy a bad ass leather couch with an extra $5K. Don't you think you deserve a leather couch at least once in your life? Well, I think so too and if you want one bad enough, I'm sure you can figure out how to get someone else to help you pay for it.

As far as treating people fairly, or being some kind of cut-throat ruthless jerk,  this is just business and the sole purpose of my company is to make a profit for the shareholders. I let Paul Newman handle all the socially responsible stuff. FYI, I always encourage my sellers to send me written testimonials and I've never gotten a bad one. I don't necessarily do the same with people I evict in court though, but I do sometimes write funny stories about them on my blog.

Brian Burke · Answer

Those are great answers above. I've never wholesaled but I buy from wholesalers.  The highest fee I've paid is $40K, but I really don't care what the fee is and I'd be fine with paying more than that. All I care about is what the deal looks like (purchase price plus wholesale fee) to me. If there's meat on the bone, I'm in - no matter what the wholesaler is getting.

Bruce Wuollet · Answer

I would stay away from commission based fees unless you are a realtor. Take it per deal and see what you can get. If in the end you are about to lose the deal, $500 is better than nothing. In my world I say, 20% of something is better than 100% of nothing. So, do your best to get the deals cheap enough that it leaves room for you. In the event you are about to lose the deal, take whatever you can get. There are times I have taken a no-fee flip. It hooked up a buyer and they still do business with us today.

Bruce Wuollet · Answer

There are no guidelines other than a little healthy sense and good negotiating skills. Greed will kill the deal and can kill a wholesaler. A good wholesaler will learn when it should be $2k, $5k, $15k, or whatever the number is. In the end the investor buyer (fix & flip) or homeowner should be making money on the deal. In our business our end buyers make more on the deal than we do, as they should. They are taking more time and more risk with the remodel and ultimate resale to a retail buyer. Or, they may fix it to rent and should end up with decent equity. This keeps them coming back for more deals when they are ready. I have flipped over 1,200 deals and my average is $4,800 per flip. The retail value on our deals is typically under $150k.

Account Closed · Answer

@Alexander Curtis

As @J  Scott said, the bottom line in wholesaling is finding a good deal.

No, find a great deal.

You create the equity in a deal pretty much out of thin air when you buy.

That is the value of a good wholesaler.

If you create a lot of equity, you can charge a higher fee and any buyer worth his salt, who can see the upside you have created for him, should not really care what your fee is.

If you do not create enough equity on the buy, you do not deserve a high fee and you should charge a reasonably modest fee.

That said, be flexible and know when to charge more or less or nothing at all if necessary as @Bruce Wuollet said.

Put yourself in the shoes of the end buyer and that should temper your expectation of what is a reasonable fee for you. Without the end buyer, YOU HAVE NO FEE!

I know you want a dollar amount but that depends on the market you are in and the class of property you are working on.

To give you a perspective that you can relate to, a factory worker with a moderate skill level as say a machine operator will earn $10/hr. Slightly above minimum wage but less than a skilled laborer e.g. a certified welder.

In one week, he will work 40 hrs and make $400.00 gross.

In one month he will work 160 hrs and earn $1,600.00 gross.

If you were really hands on and compressed all your time together on one wholesale deal......marketing to find the deal, sorting through the bad ones to get the good one, figuring repairs and ARV, getting it under contract,  phone calls, marketing to sell the deal, showing the property etc. you would be in it for say roughly 40 hrs from finding it to getting it sold (It may be more or less depending on your skill level and your network but lets go with 40hrs).

Say the deal does not have a lot of wiggle room and you charged a fee of $1,600.00, (what the factory worker makes in a whole month) you would have made $40/hr in that one week and you would still have 3 weeks left to go find 3 more deals or take a break if you wanted to.

Say the same deal has more wiggle room and you charged a fee of $5,000.00, (what the factory worker would make in a little over 3 months) you would have made $125/hr in that same one week and you would still have 3 weeks left to go find 3 more deals or take a break if you wanted to.

Be reasonable.

Be realistic and

.....most of all, find great deals, that is where it all starts.

Dell Schlabach · Answer

I wholesaled four house in the last two month, the lowest profit was 5,000 highest 10,000 Two were in between, but closer to 10k. These are on houses that will retail for 100,000-150,000. The rehabber will likely make 20-25.

In our area I can sell those all day long, if I could get them cheaper, I could increase my fees, and my rehab buyers would still be happy.

Aaron Mazzrillo · Answer

I've been asked this question so many times and the right answer EVERY TIME is 'As much as you can get.'

Now, on occasion, I do pass along a deal to my preferred buyers with a little more juice. However, it always seems to be paid back to me. A few bonus gifts I've received this year:

3 day deep sea fishing trip, all expenses paid 5 day fly fishing trip (guides included), $500 cash, Microsoft Surface Pro 3, bottle of Dom Perignon, and just last week an all expenses paid cruise to Alaska for my wife and I that we'll be going on next year. All those gifts are on top of the wholesale fee paid for the house and they are typically given to me after my buyer closes on the retail side and gets more than I figured the house was worth when I sold it to him. I tend to be very conservative when buying.

Most of my wholesale fees are in the $10-$20K range, but I've done quite a few up to $50K. Still looking for that $100K WSF and I could have gotten it recently, but I decided to keep the house as a rental until the market gets better and then I'll cash out.

J.j. McGuigan · Answer

I also have a question about fees as a new wholesaler.  Is it wise to have a floor or a minimum of a fee for a deal regardless of the ARV ? I've heard some will do that and it usually works out that they don't lose deals on that clause.  As someone starting out should I just make sure I get my first few deals done and not be too concerned about the fee, but then again I don't want to end up selling myself way too short, if it's just a little that's no big deal, I mean it's better than potentially ruining the deal. What seems to make the most sense is doing the 10% commission with a minimum in place say at $1,000 or to start with$500.  Any advice on this would be awesome. Thanks

J.j. McGuigan · Answer

@Bruce Wuollet

That makes sense, thank you.

So basically take it deal by deal and just make sure to leave enough room for myself to earn something, could be $500 or $5000, just all depends on the deal and the relationship with the seller and end buyer.

HOW MUCH CAN YOU CHARGE FOR A WHOLESALE FEE? WHAT IS POSSIBLE?

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