Don't Get Greedy! Or Else! By Matt Larson

If your profit is as high as a wholesaler as the profit of the cash buyer that is going to buy, fix, and then resell then you are charging too much. The person that you are selling to is taking a lot more risk than you so his/her profit should be higher.

Also, for the record, I wholesale more than anything else. I did over 400 deals in 2011. I only bought and held around 60 deals. The rest were either wholesaled or fixed and flipped. My AVERAGE profit on my wholesale deals was around $4k. Now, that doesn't mean I didn't make more on some deals, WHERE I COULD JUSTIFY IT.

Flip Kid--I understand what you are saying and I do agree, however you are at a different level than most of the people here. Keep reading...

My next paragraph is the most important in this post!

The reason I don't post when I score big on a wholesale deal is because most newbie's (and even experianced people) are greedy. When they see where someone made $20,000 or more on a deal they immediately think that that wholesaler always make that much on all of their wholesale deals...then they go out and put an average deal under contract, try to wholesale it for $10,000, nobody buys it, then they quit and say that real estate doesn't work in their area or real estate doesn't work for them, WHEN MAYBE THEY COULD HAVE WHOLESALED THAT PROPERTY FOR $2000 WHICH WOULD HAVE CHANGED THEIR LIFE BY GIVING THEM THE CONFIDENCE TO KEEP GOING AND DO MORE DEALS!

Always be volume focused. Always give the next guy a better deal than you got and you will ALWAYS have cash coming in!

GET IT? (DONE)!

Matt Larson

This is a great thread. Thanks Matt and company!

This says it all! Thanks Greg!

Well said Matt!

You both are wise beyond your years! Thank you so much for sharing that wisdom with our DG Family. It's an AMAZING & AWESOME thing, how everyone here is pulling together and creating such a positive impact in the world. So many lives are changing for the better everyday. Everyone here paying it forward...LOVE IT!

I agree with you Matt and understand what Flip Kid is saying. The bottom line is every deal is different and different areas can allow for different fees.
I'm currently working in different areas of 2 different states and my fees are different in both places. That's the point! It's all situational. There's no one answer.

Regarding Flip Kid's comment that he could "hide" the info for 6 weeks from his buyer, on the 7th week you may have lost that customer for future deals (unless he has already told you that he didn't care what you made) because of your ethics.

Just something to think about.

Andy Sager
DG's AndyS

I don't comment as much as I read, but 2012 is the year I'll comment more.

I believe the big deals and big assignment fees keep most of us going. I do remember telling a mentor that if I only made a dollar on my first assignment that at least I learned how to make a dollar. I am not saying that I only want to make a dollar, (LOL) but I can say that I am able to complete an assignment/wholesale deal.

To all fellow wholesalers, I believe greed is good, but only for the buyers. The more deals at profitable prices we provide for them, the greedier they'll become, and the more (dollar)s we will make.

Like always, Thanks to all the "Seasoned and Experienced Investors" for providing insight into the vast world of RE investing!!!!!

Matt said:
I notice there are a lot of greedy people out there. They want to squeeze every last dime out of a deal when they wholesale it to a cash buyer.

The reason I don't post when I score big on a wholesale deal is because most newbie's (and even experianced people) are greedy...end quote.

Larry aka Flip kid said:
I did a deal in August where our assignment fee was $43,000, and the buyer was perfectly fine paying it, because he made a 35% ROI when he sold the property. He bought it from us for $85k (our contract price was $42k), put about $60k into it and sold it for $230k. This buyer is always coming back to me for more properties and I will continue giving him the properties first since he doesn't mind paying me a high assignment fee as long as the numbers work for him....end quote.

greg murphy said:
leave a little meat on the bone...end quote.

We're supposed to 'leave a little meat on the bone' for the seller too, since we're suppose to be 'helping' them and creating a Win,Win Win situation

All markets are different- you HAVE to know the values in your area and what the house will sell for 'quickly'

Some for the seller. Some for me. Some for the buyer. Some more tomorrow. I'm feeling Matt. I love reading your posts, Matt. Gratitude, man. peace,

GREAT STUFF
This is great stuff, as someone new to this business, I rather enjoy such topics as these. I get frustrated with the little accomplishments from tons of hard work. However i find relief and motivation from confirmation that im on the right track. A different oppinion and view is always helpful. Thanks guys!

Everything Matt said in his comment makes perfect sense:

I agree with all of that, but sometimes it takes those big deals just to show what is possible to get people motivated. =)

For anyone who thinks I am being greedy.. let me ask you this:

If a property were listed with a seller on the MLS, and you agreed to pay the seller the same price you would agree to pay me for the property (before you knew I was making a big assignment fee), then why should my profit matter? Do you care what the seller is making on the MLS? Most of the investors I deal with only care about their profit, not mine. Those are the ones I like to deal with the most, and they keep coming back as repeat buyers. =)

I always make sure it's a win-win-win for everyone involved. The Seller is happy, I'm happy, and the buyer is happy.

But like I mentioned, Matt made a very good point above and I understand completely where he is coming from. Just Get Out there and get the deal done. Don't try and make every deal a home run, especially when it's not! STICK TO THE NUMBERS!

Most of my deals are $2-10k profits, and I also run my business on doing volume. I was just saying not to sell yourself short if you are able to land a slam dunk deal!

To Our Success in 2012!!!

Larry F
The Flip Kid

Yes you CAN make a HUGE assignment fee IF the deal is SWEET enough.

HOWEVER, your average assignment fee is going to be under $10,000 on most of your deals.

The BIG assignment fees are a MARKETING TOOL to get people MOTIVATED to TAKE ACTION!

Once you get into the business, you have to stick to the numbers.

If the numbers work for you and your buyer and you can make a large fee. Then do it.

2012 is going to be a great year!

Larry, Matt, you are the reasons why I am who I am today!

Keep pumping info into these posts because they mean the world to everyone who reads them!

I will do the same within my own posts!

One last thing and then I'm done commenting on this post because I feel I have gotten my point across and I think several of you will take it to heart and actually apply what I am teaching....

Dean and I talk all the time about how people get greedy and try to make too much while doing a deal which greatly negatively affacts their yearly income. He is always telling me the reason I am as successful as I am is because I'm not greedy...

If you do 6 deals a year and make $20,000 per deal then you make $120,000 in that year, but what if you were skimming the profits too tight for your buyers and they started doing some marketing themselves or started contacting other wholesalers that would cut them a better deal?

or

If you do 40 deals a year at $6000 profit then you make $240,000 (double the profit) and your buyers love you for it. They never try to market themselves because their happy with you. Do they want to buy even more from you the next year? Of course!

Deals are abundant, cash buyers are limited.

That's the path I chose several years ago. I wanted to be the cheapest guy on the planet. It worked. Its still working 800 plus deals later. $100,000 week profits happen sometimes for me. Cash for cars, cash for houses, cash in the bank, exspensive homes, expensive jewelry, retired both of my parents, thousands per month to charities, no debt, etc, etc...

Just food for thought.

Your my HERO !!!!

Thanks for the post.

Curtis Fillers
(Charlotte,NC)

I have a house locked up for $38,500. Needs $10k work. Blocks away from two major colleges and a park. ARV is $80K to $99K. I can't even get a bite at $42K. I'm scheduled to close in less than two weeks. Looks like I may have to tick off a lot of people and walk away from the deal. Why would I try this again if this great deal didn't work? My property manager wants to buy it but doesn't have the financing. I want to keep it for a rental but really can't quite swing that right now. I've marketed it every way mentioned and then some.

Wendy

Contact me, by PM. I might be able to help find a buyer.

Curtis Fillers
(Charlotte,NC)

I agree, Matt - - don't be greedy! I have taken and will follow your advice. Hopefully I'll be successful as you. Thank you for providing us with this helpful information - - or rather, the reminder.

Thank you Matt for this insight. This was one of the quesstions that I had wanted to ask you in relation to wholesaling. I, too, have noticed the greed in some of the wholesalers/newbie investors who set outrageous fees. It made me question, if there was any real success in doing real estate business this way. I will keep this in mind when doing my deals.

BTW. . .when is it justifyable to set your fee higher than $5-7k? I am sure there will be times when there is more legwork and time negotiating a great deal and putting it on contract. Is there a way of relaying that to a cash investor to jutify to him/her the amount of time/legwork spent to create a good ROI for them?

Anissa S.

I appreciate all the information both Matt and Larry have provided. The key ingredient is the same for all that we do, and that is to find balance. Don't be greedy, but don't sell yourself short... Don't be afraid to ask for a high fee, IF the numbers justify it and the buyer makes a great profit as well.

In all that you do... find balance!

Larry, I was going to post exactly what you posted. Let the numbers speak on each deal. If I get a house under contract that merits a $20,000 fee, I will charge $20,000. As long as the numbers work for my buyer!! Those deals don't come very often. There is NO ONE WAY ONLY! Like you and Matt have stated, my average wholesaling fee is $5,000. Like both of you stated you MUST know your numbers. Accurate ARV and rehab costs. Don't inflate your ARVs and under estimate rehab costs. Wholesalers do this ALL the time because they paid to much in the first place.

What I see most often with new investors is NOT greed. It is a total lack of understanding of how to find and evaluate wholesale deals. They have no clue! Then they try to wholesale there "deal" to buyers that have no money. They also think this is easy and get rich quick kind of thing. ALL should notice that MATT has be doing this for SEVEN years now. Fully committed, full speed ahead!! His is a GREAT success story.

Wendy, I see you have an ARV of $80,000 to $99,000. There is way to much spread there. You must determine what the subject property will actually SELL for with the rehab/remodel estimate you have. I think you are not moving this for one of the following reasons or a combination of several.
1. Your ARV is to high based on sold, currently listed and under contract comps. (real comps)
2. Your rehab/remodel estimate is low.
3. You don't have any real cash buyers or investors are not buying in that area. This seems unlikely.

If your numbers are accurate and your buyer sells the place for $80,000, after his selling, holding costs, rehab and purchase price he would be looking at 38% ROI!!!(cash deal, no money costs) Investors from all over the country would take a 38% return. Something is wrong (most likely the numbers)or actual location, layout etc.

Maybe a price reduction to $40,000?

Michael Mangham
MD Home Acquisitions LLC

Actually just in this for 6 years and 2 months!

thanks for your input.
i feel that all things considered you're absloutely right. when you try to make too much, you're not helping yourself by helping others. that's not saying you can't make great hits sometimes, but that's not the average deal.
put yourself in your buyers position. would you want to take bigger risks and make the same money? come on people, use some common sense.
thanks for the post matt, as always i look forward to your input.
keep moving forward, rob

You're not the devil's advocate, that's just good strategy to look at all aspects of an endeavor. Knowledge is power and the more you know, the easier it is to make an INFORMED decision.

Matt are you doing any investing in the Chicagoland or just in the Quad cities??

As usual great advice, be the WalMart of real estate! But give great service too and keep them coming back for more.

Good morning Matt. Great post about Capitalism! Hey, I'm spankin' new at this (I've finished Dean's second training video and I'm still a bit clueless as to how to even get my first deal)and I was curious if you know how many people are using Dean's program in Connecticut? Since I'm so new, I'm a bit scared that there may be a lot of people doing this already in my state and that the opportunities may already be grabbed up by veteran students. Also, I'm reading the book "Profit From Real Estate RIGHT NOW". This was written, if I'm not mistaken, back in 2010. Is the market TODAY (2012) a ripe one for doing Dean's real estate investment strategies? I'm really excited to be fully committed but I need a truthful answer from someone like you that I consider to be a seasoned veteran.

So MATT are you doing business in South Jersey or Philly area yet??

I still didn't see my question answered.

With all that comes into the rehabing, holding cost, realtor fees, and closing fees. How do wholesalers like myself find out how much profit after all expenses the investor is going to make?

This way I can predetermine my fee and keep everyone happy.

Ex.

ARV 100,000*.65 = 65,000 - repairs lets say 15,000 = 50,000. End buyer purchase price is 50k then. This would normally mean to me I need to purchase it for 45,000 or less if I want 5,000 profit. Now I am not sure if that is 1/3-1/4 of their profit.

How do I determine how much profit are they really getting if this deal is accepted?

I realize there is 35% left in that ARV but not all of it will go towards profit as there are holding and closing costs as I said above. So that isn't a very accurate number to judge the buyers profit or is that the number your talking about?

Should be say calculating 1.2% of ARV towards holding costs against ADOM + the 3% realtor fee of purchase + 3% of full ARV for sale to give me realtor costs and then add title company fees to give their full costs and reduce ALL THIS from that 35% to get a semi-accurate number for their profit to get my 1/3-1/4 number and subtract that from the end buyers purchase price to get my seller offer to purchase the house with?

Or is there an easier way?

I love that you tell us to keep our fee short but, some have no idea how much profit they are making just that they will only buy at 65-70% of ARV less repairs. Myself included and I've just figured 5k was a good number even when everyone is saying they make 20-40k fee then I see your post it just confuses me. I don't know if or when I could get away with a higher fee or just my 5k.

Any insight would be great...

Keep it simple. Don't worry about what your end-buyers net profit is, just go for a gross profit.

The way you are running the numbers is important, but at the same time as a wholesaler your making it to complicated. What is the criteria of YOUR buyers? What is their exit strategy, are they using cash, or is the property being bought with financing and cash to rehab?

Matt does give a good example of what is a good deal to an Investor. Just because the Investor should make 3-4 times much as the assignment fee doesn't guarantee they will. Yours/theirs rehab estimates can change, there can be unforeseen title issues, the appraisal can come in way too low, etc. It is very difficult to safeguard against these. Just trust your instinct about your research.

If your end buyer is good with buying a house from you (including the assignment fee) for $55K puts $15K into it and sells it for $90K, on those numbers alone, then you have done your job well, making you and your investor money. He made $20K gross profit and you made $5K assignment fee, there is the 4 time multiplier.

Here is a little complicated formula. It involves Rent, cash flow, and equity. If the house appraises for $100K but the bank only loans up to 85% of that, if your cash buyer uses cash to purchase and rehab they can then refinance on that property, but only up to $85,000. The next part depends on the financing, if the loan terms are right and the rent is high enough to provide cash flow after the expense of vacancy, taxes, insurance, maintenance, then the investor can refinance and get his $85,000 back into his pocket and keep the cash flow. If the rent will only allow the investor to refinance up to $65K, then that's the most the investor may want to put in the deal.

So if it takes $55K to buy it, and $15K to rehab plus the closing/holding costs and the bank will only loan up to $65K on it, if the investor doesn't mind keeping money in the property, then the investor may continue on with the deal. If the Investor wants 100% of their investment back, then maybe its not a deal.
So in this situation how would you know if it was a good deal? Your buyer will tell you it is.

There are so many variables in this game of Real Estate, DON'T WORRY about them. Only be concerned with what YOUR buyer wants in a deal.

You are going to lock up deals under contract and you will have to back out because you do not have a buyer. IT WILL HAPPEN more than once. But it will NOT happen every time. Just keep on making offers that make killer deals. When one says yes to the KILLER OFFER You'll have a KILLER DEAL.

Matt won't answer. He's out doing deals.
Ask one of the coaches on here or ask someone who's done plenty of deals.

RENinja