I’ve been getting quite a few questions about how wholesaler fees work, how much they are, whether I need to be licensed or not and so on. So, I figured I would take some time to address these questions formally in an article.
What is a real estate wholesaler fee?
The fee a wholesaler earns is the difference between the price you, as the wholesaler, put the house under contract for, and the price you sell it for to your end buyer (whether that is an investor or a retail buyer). So, if you put a house under contract for $100,000 and sell it to another investor for $110,000, the wholesale fee is $10,000.
Do I need a real estate license to earn these fees?
If you are putting the house under contract yourself and then selling your rights to the contract, then it is my understanding that you do not need a real estate license. I am not a lawyer though, but that is how I understand it.
Do I earn a commission on the sale?
No. Commissions are for licensed real estate agents or brokers. You earn the difference between what you put the house under contract to buy it for and what you ultimately assign the contract for.
If I am part of your wholesaler program, do you get part of the wholesale fee?
Not automatically, no. You can use the articles, tools, and courses that we have on the Real Estate Investor Wiki (part of your Real Estate Investor Bronze Membership) to learn how to wholesale and not pay us anything. So, you can wholesale the deal completely on your own and not pay us a thing.
How do I collect my wholesale fee?
There are several variations, but you can collect it directly from your buyer or, more commonly, collect it from the title company at closing.
Until my next post,
James
P.S. If you want to consistently collect wholesale fees it helps to have a great system and supportive team to assist you and that is what we offer in our Real Estate Investor Bronze Membership. Enroll today.
Lately, I have been working with more and more real estate investor wholesalers. One of the first questions I am asked by people who are new to the business is exactly how wholesalers actually make money.
First, I want to describe what a wholesaler does and does not do and then I will cover how they actually make a profit when they wholesale a deal.
When we are talking about wholesaling real estate, we are specifically referring to you finding a great deal, placing a contract on the property and then selling your rights in the contract to another investor or someone who will be living in the property.
Specifically, you are not “helping people sell their home,” like you would be with a real estate license.
So, how do wholesalers make money? They make money by selling their rights to the contract. Here’s an example of how a wholesale deal might work.
You find a property that is worth $100,000. You talk with the seller, and they agree to sell you the property for $55,000. You then write up a contract to purchase the house in the next 45 days for $55,000. You also include that you have the right to assign your contract to someone else if you want to.
Next, you go and find another investor who wants to purchase the house or someone who wants to live in the house. For this discussion, we will call them your buyer.
You and your buyer agree that they are willing to pay $65,000 for the house. So, you buy it for $55,000 and you are selling it for $65,000. You have a gross profit of $10,000 (not including your expenses to find the seller, find the buyer and any closing costs you might have).
In future articles, I will cover the mechanics of how the transaction works, but for now realize that your buyer will be purchasing the property for $65,000 and the seller will receive their price of $55,000. This leaves you with a gross profit of $10,000 on the deal.
If your buyer comes from a real estate agent or broker on your dream team, you may also need to pay a real estate commission from your profits. On this particular deal, if you agreed to pay a 3% real estate commission for your real estate agent or broker to bring you a buyer, you would pay them 3% of the $65,000 purchase price or $1,950. In that case, instead of grossing $10,000 on the deal, your profit (before other expenses) would be about $8,050.
The big picture is simple: wholesalers are paid for finding truly great deals, placing them under contract and then selling their rights to purchase the property at the contracted price.
Until my next post,
James
P.S. Wholesaling is an important strategy for new investors that need to generate quick cash flow into their business (and personal finances) and that is why I spend a lot of time and training teaching this to our Bronze Members and specifically with the free consulting and mentoring they get as well. If you want to get access to our training materials and consulting and mentoring, please upgrade to a Bronze Member today.
