How much should a wholesaler charge another investor to purchase the property over and above the price that the wholesaler was able to negotiate with the Seller?
Most typically, a wholesaler will charge anywhere from $5000 to $10,000 to sell his contract to purchase the property to another investor. But this can vary significantly, depending on the location and condition of the property being purchased, and especially the terms that the wholesaler was able to negotiate.
Some wholesalers I know calculate the profit that they anticipate in the property when fixed up, and charge up to 50% of that amount to another investor. This, of course, assumes that there is quite a bit of profit built into the deal.
Some wholesalers who are new to investing might also look for an equity partner to help them learn about fixing a property for the market. They may not have a construction team in place, or may not know how to market the finished product to traditional buyers. They may partner for 50% of profits, where the wholesaler does all the work and puts up all the funds, under the guidance of a more experienced real estate investor.
However the wholesaler prices his fee, he should keep in mind that the investor buyer may want to negotiate further on price. This often means cutting into the assignment fee that the wholesaler was going to charge. So it is a good idea for a wholesaler to build a bit of room for negotiation into his/her fee.
Some new investors may not feel comfortable getting a property under contract, because they are still unsure about pricing or fix-up costs. In this case, they may want to partner with a trusted investor, who will simply pay them for the lead and handle the negotiations related to the purchase of the property.
They may want to joint venture with a more seasoned investor, where the new investor finds the property, puts up the funds, and lets the seasoned investor handle negotiations, rehab, marketing, and sale to an end buyer.
In the course of searching for investment properties, the wholesaler will come into contact with many motivated sellers who want full retail price for their property. This usually won’t work for an investor, but would be perfect to refer to their favorite real estate broker.
If the wholesaler does not have a real estate license, she cannot be paid a percentage of the commission on the sale of a property referred for a listing. The Department of Licensing describes the practice of promising to pay a gift to an unlicensed person as unlawful under Washington law. Referral fee payments to unlicensed individuals or entities can jeopardize the broker’s real estate license.
The law does allow for a wholesaler or anyone without a license to be paid a fee for referring leads, whether or not these result in a transaction. In fact, many of these leads will not turn into a listing agreement or a closed transaction for the real estate broker, so the broker cannot pay a lot of money for these leads.
I typically pay around $100 for these kinds of leads, and a bonus if the wholesaler is consistently sending me leads that turn into listings and closed transactions. As additional incentive, I will provide NWMLS access to people generating leads for my business, but not every real estate broker will do this. Look for ones that understand investors and working with wholesalers.
This is a great option for wholesalers to be making money from leads that do not result in investment deals for them to assign to other investors or cash buyers. So wholesalers, make money with most all of your leads, and
Happy Investing!
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