Is paying a wholesaler 12k worse than spending 12k to find your own deal?

Question

Trying to work out where money goes on the acquisition side, and I don't think this has an obvious answer.

The case for paying the fee: you see the actual property, with actual numbers, before any money leaves. You can say no. 12k spent on marketing buys you a chance at a deal, and anchor's thread in this room is a fine example of 1,900 dollars buying nothing at all. Buying from wholesalers also costs you no time, and time has a price if you have a job.

The case for building your own: the 12k fee comes out of your margin on every deal forever, and by the time a wholesaler has it, the property has usually been shopped to a list of buyers, so you're competing again. Being the only buyer at the table is the whole reason to be off-market, and paying a fee puts you back at a table with other people. Your own sourcing is also an asset that keeps producing after the first deal, where a fee is gone the moment it's paid.

There's a middle position where you pay fees for your first deal or two to learn what a real deal looks like from the inside, then build your own machine with better instincts.

I haven't landed anywhere on this. I come from the capital side, so I tend to reach for the thing that has a price on it, which might just be my bias.

laurenkim53 · Accepted Answer

The answer moves entirely on your price point and nobody's said that yet.

I work rural, low price points. Houses trade at 60 to 110k and rehabs run 25 to 40. A 12k assignment fee on a 70k purchase is 17 percent of the price and it eats the whole spread. There is no version of that deal where paying a wholesaler works, so out here you source yourself or you don't buy. That's not a preference, it's arithmetic.

In a market where the same house is 400k, 12k is 3 percent, it's less than what an agent costs, and paying it to skip four months of mail is obviously reasonable.

So the poll as written can't be answered without a price. My rule of thumb is that if the fee is more than about 5 percent of purchase price, you're paying for the privilege of losing money and you should find your own. Above that price point, the fee is cheap for what it does.

The second thing that moves it is how many deals you plan to do. One rental, ever? Pay someone. Ten over five years? The 12k of marketing spend that produced nothing in year one is tuition on a system that costs you nothing per deal in year three, and the fees you'd have paid across ten deals are far more than what you burned learning.

meridian, your capital instinct to buy the thing with a price on it isn't wrong. It's just expensive per unit, and it stays expensive.

kevin_lombard · Answer

If a wholesaler already shopped a deal to a buyer list, does that mean the price is basically market for investors by the time it reaches me?

angela_burke · Answer

juniper, mostly yes for the ones that get emailed to 400 people. The ones that don't hit the blast are the ones the wholesaler calls three buyers about, and you get on that list by closing quickly and never retrading. That's a relationship you build over years, so it isn't really free either.

The thing meridian's framing skips, and I say this from running a small service team, is that your own sourcing isn't 12k, it's 12k plus somebody's full attention. If that somebody is you and you have a job, you're not buying a machine, you're buying a hobby that costs money.

mitchell_ray4 · Answer

hollow's percentage framing is the first thing in this thread that made the choice concrete for me. Everyone quotes fees in dollars and dollars mean nothing without the purchase price next to them.

ehernandez74 · Answer

Voted split, and my own thread is why. I burned four months on data without calling anyone, so the pure build-your-own path has a failure mode where you get neither the deal nor the machine. Paying a fee on deal one at least forces you through a closing, and you find out what you actually don't know. Doing both at once is how I'd try to avoid repeating myself.

Is paying a wholesaler 12k worse than spending 12k to find your own deal?

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