Where does the money actually go in a virtual wholesale deal?

Question

Before I fund anything connected to this, I want to understand the model. What I've read says virtual wholesaling needs no money because you assign the contract instead of buying the house. Then in the same forum post someone mentioned earnest money, transactional funding for a double close, and a monthly data bill. Those are all money.

So which is it in practice. If I never set foot in the state, what am I actually writing checks for, and roughly in what order? I'd rather understand the cash out before the cash in. Also I don't fully get the difference between assigning and double closing, other than that one of them seems to hide the fee.

Rena Guide · Accepted Answer

Strictly, wholesaling means you sign a purchase contract with the seller and then sell your rights under that contract to an end buyer for a fee, called an assignment fee. You never take title. Loosely, people also call a double close wholesaling, and that's different: you actually buy the property and resell it, usually the same day, using short term funding. The house is yours for a few minutes, so you pay closing costs twice and you need money for the buy side.

So the cash out, roughly in order. Data and outreach come first, because you can't assign a contract you don't have. Then earnest money when a seller signs, commonly a few hundred to a thousand dollars, though the amount is whatever you negotiate and whatever local practice expects. Then the walkthrough that lantern described. Then, only if you double close, the funding cost and the second set of closing costs.

Assignment doesn't hide the fee. In a plain assignment the fee usually shows on the settlement statement, and a growing number of states require you to tell the seller in writing that you're selling the contract rather than buying, with the exact wording and timing set by that state's own rules. Confirm what your state and the property's state require with an attorney licensed there.

The part that surprises people funding this is that the buyer side is the constraint. A signed contract with no buyer is just an obligation with a deadline on it.

mikeoconnell7 · Answer

One line item people forget until the last minute is the person who actually walks the house. I'm building that service out and the going rate I see quoted for a photo and video walkthrough with a room by room checklist is somewhere around $75 to $150 a visit, more if the property is an hour outside the metro. If you're running twenty appointments a month across two states, that's a real number, and it's the one that keeps your ARV honest.

megan_doyle15 · Answer

Wait, so in a plain assignment the seller can see what I'm making? I genuinely thought that was private.

omar_haddad · Answer

rigging, in a lot of closings yes, and honestly that's the least of your problems. The bigger one is what meridian is asking about indirectly. Your ARV comes from photos someone else took. Photos don't show a sagging ridge line or a wet crawlspace. I've watched people write $260k ARV off eight cell phone pictures and then discover $40k of structure. Tell whoever walks it to shoot video of the roof line from the street and the crawlspace hatch, not just pretty kitchens.

laurenkim53 · Answer

Rural changes the arithmetic too. On $60k to $90k houses the fees I see talked about are $3k to $5k, not $10k, and comps are thin because half the sales are family transfers. Worth knowing that in roughly a dozen states sale prices are never made public at all, which means your data platform is estimating, and you're estimating on top of the estimate.

gregpowell66 · Answer

The walkthrough quality thing matters more than the price of it. Coming from job sites, I'd rather pay $400 for a licensed inspector on the ones I'm unsure about than $100 for a nice person with a phone who doesn't know what a bowed foundation wall looks like. Cheap eyes on a distant house is how a $12k spread turns into a dead contract and an annoyed seller.

jordan_ellis2 · Answer

The disclosure piece is what finally made me slow down. The rules aren't the same in the state I live in and the two states I was building lists in, and one of them has language about advertising a property you don't own. That's a lawyer question per state, which is annoying but cheaper than finding out later.

hannah_west29 · Answer

meridian, think of it as cost per contract rather than cost per deal. If data and texting run you $1,500 a month and you sign two contracts, that's $750 each before earnest money, before the walkthrough, before travel you swore you wouldn't do. Then apply a fallout rate, because some percentage of signed contracts never close. At a 40% fallout rate your two contracts are 1.2 closings. The fee looks less exciting divided that way.

aliyah_b · Answer

Adding ledger's numbers to lantern's and girder's gets me to something like $2,000 to $3,000 for a first month where nothing closes, which is roughly what I've budgeted. My worry is month two and three, because the reading suggests the first contract can easily be three months in.

bmoreno23 · Answer

I'm at the stage before all of this, which is picking a market at all. Everyone says go where the sellers are motivated, but nobody explains how you'd know that from a laptop in another time zone. Do you just look for cheap median prices and lots of absentee owners?

raj_mehta14 · Answer

ember, I asked something similar and got told absentee owner counts are a starting filter, not an answer. Separate question I can't resolve: is an assignment fee ordinary income? That's a CPA question, I know, I just want to know if it's a surprise.

Where does the money actually go in a virtual wholesale deal?

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