From the desk:Dispo / Marketplace Services

Breakeven on this dispo partnership is 7 closings a month

I've built the model out four ways and I keep landing in the same uncomfortable place, so I want other eyes before I commit to this instead of buying my own deals.

Setup: two acquisition-focused wholesalers, no dispo capacity between them. They want me to take the sell side on a 40 percent of spread arrangement. Their combined trailing six months is 47 contracts signed, 29 closed, so a 38 percent fallout rate which they described to me as normal. Average spread on closed deals 9,800. Average days contract to close 24.

At 40 percent of 9,800, each closing pays me 3,920. My fixed costs to run this properly are a VA at 1,100 a month, dialer and CRM 240, list and skip trace budget 400, so about 1,740 before I pay myself anything. My old salary was 78k, call it 6,500 a month, so I need roughly 8,240 a month gross, which is 2.1 closings. That part looks easy.

Where it breaks is variance. Their monthly closings over six months were 3, 7, 4, 2, 8, 5. Two of those months don't cover my number if fallout runs high, and I have no control over acquisition volume at all. I also can't tell how much of the 38 percent fallout is bad contracts versus buyers walking, and they don't track the reason codes.

Option A is the 40 percent split as offered. Option B is 25 percent of spread plus a 1,200 monthly retainer per wholesaler, which floors me at 2,400 and drops my upside in good months by about 1,500.

Which one survives a quarter where they only sign 18 contracts?

Answer

2Rena Expert

Your two options price different risks and the choice depends on which variable you think is unstable. The spread split exposes you to volume and to their acquisition pricing. The retainer plus lower percentage shifts some volume risk to them and costs you upside in the months when spread runs fat.

On the numbers as given: 29 closings over six months is 4.8 a month, and at 40 percent of 9,800 each closing pays you about 3,920, so roughly 18,800 a month gross at trailing average across both partners, against 1,740 of fixed cost. Your stated need is 8,240. The trailing average clears it comfortably and the worst month, 2 closings, produces 7,840 against 8,240 in cost. So a single bad month is nearly breakeven and two consecutive bad months draw down reserves. Size your reserve off the worst two-month window in their history rather than the average.

The 38 percent fallout figure is the number that deserves scrutiny. Fallout driven by seller cancellation and fallout driven by buyer inspection walkaways have different fixes, and only the second responds to anything a dispo operator does. Without reason codes you cannot tell whether your presence changes the rate at all, which means you cannot tell whether the 40 percent is fair.

One structural note: a retainer paid monthly for marketing and selling real estate contracts can look like compensation for brokerage activity depending on how your state defines it and on whether you hold a license, so confirm the arrangement with a local attorney before you accept recurring payments. That answer differs by state.

4 replies

2marcus_hale41CG4A

Option B, and not because of the floor. The retainer changes what they do. A partner paying you 1,200 a month whether or not anything closes has a reason to feed you contracts and a reason to care about their own fallout rate, because they're now carrying a cost that only pays for itself with volume. Pure spread splits let them treat you as free option value and go quiet for a month with no consequence.

Separately, your model is missing the reason codes and that's the whole risk. Ask them to reconstruct why each of the 18 dead deals died. If most are sellers backing out post-contract, that's their acquisition process and it will keep happening at the same rate. If most are buyers walking after inspection, that's rehab estimates being 10 to 15k light, and that one you can actually fix from your seat by repricing at the flyer stage.

Also run your model on spread rather than count. Six months at 29 closings and 9,800 average tells you nothing about the distribution. If four deals carried 20k and the rest carried 5k, your 40 percent is riding on outliers and two bad months in a row wipes your reserve. I'd want the individual spreads before I signed either version.

0laurenkim53Passive

The 9,800 average is doing a lot of work in your model. In the small rural markets I follow, spreads bunch around 5 to 7k and one 25k deal a year drags the mean up where it doesn't belong. Get the median from them. If the median is 7k, your 40 percent is 2,800 a closing and a two-closing month goes underwater.

2megan_doyle15 Get yours

Dumb question from the back of the room, why would they hand off the sell side at all if the spread is theirs to keep? What are they doing with the time they get back?