Using the Wholesale investment strategy, there are many ways to add value and secure larger assignment fees when we strategize the best possible use for a property. Finding distressed properties and sellers is the most common place to find our deals, but we can do much more than buy low and sell low when it comes to deal structure.
Changing the zoning of the property or changing the use of the property. First, we find a potential deal, then determine how to maximize the profit. We can do a traditional Single Family Residential (SFR) deal. First, get the property under contract at a discount, sell to another investor who can add value and sell for a profit, or buy and hold the property long-term for cash flow and appreciation. Typically, we see these standard wholesale assignments earn anywhere from $500 to $10,000+, but a good average is $3,000-$5,000 per deal. Suppose we want to make a more significant assignment fee. In that case, we will need to show our potential end-buyer a significant return. So, we start to ask specific questions. Can the dwelling be split into multiple units? Can it be used for student housing or as a short-term vacation rental? How much higher would the income be if a home was used to house veterans or recently released parolees? By increasing the cash flow, or income, of a property through any of these methods, you can show an increase in value.
$175,000 Purchase Price
$5,000 Repairs required to rent (Paint/Landscaping)
$20,000 Furniture included (Past Vacation rental)
Investor purchases for a total of $185,000. They will spend $5,000 repairing and renting to a new tenant, so the furnishings have no value. The investor makes $10,000 inequity in the buy since they are all-in for $190,000.
$10,000 assignment fee
Higher Use Wholesale: Investor purchases for a total of $205,000. They will spend $5,000 to repair and rent as a short-term rental. Value with furnishings (additional $20,000) is $220,000. The investor makes $10,000 inequity in the buy since they are all-in for $210,000.
$30,000 assignment fee
Knowing how to structure your deals creatively and present them to solve more significant problems will get you paid more money. You can see from the example above that we, as the investor looking to assign, never have to put any cash or credit into this deal. We must know how to properly structure the deal, then find the correct type of buyer for that structure, which we will discuss in our next section.
Sign the Paper
Next, we must formalize the deal and the structure using our different legal agreements. When completing wholesale assignments, we will need a purchase and sale agreement and an assignment of a contract agreement. For some deals, you may execute a double close, which would be used to complete the purchase, sale, and resale with two separate purchase and sale agreements. This is often done when the investor collecting the assignment fee is making a much larger fee and does not want to risk losing a deal with the end buyer thinking they overpaid.