While this question is not exactly related to a wholesale flip, it’s important to investors doing deals.
- When investors think of the term “partnership” the immediate thing that comes to mind is that the profit of the deal will be split with a partner, that’s the reason the partner is putting up the money for the rehab or double closing.
- Unless the investor makes it very clear to his “partner”, before he becomes a partner, the partner may assume a split of 50% of the profit.
- In a wholesale flip or same-day double closing, the profit could be 5 to 25% of the original purchase price.
- Let’s assume on a $100,000 wholesale deal the net profit after closing costs is $15,000, so the partner would make $7500 for putting up the $100,000 to close.
- However, a transactional funder would charge $1000 for the same transaction for a savings of $6500 to the investor.
- More likely the investor wants to buy and hold the property for rehabbing in which case he should be making at least a $30,000 profit on this type of transaction.
- Let’s once again assume that his partner will get $15,000 for this transaction assuming he isn’t also charging interest and points on the money.
- In this situation, if a hard money lender funds the investor, his expense for the money would be about $1000 a month at 12% and $3000, or three points, at the closing for a $100,000 property.
- The investor would be better off with a hard money lender even if it took him six months to finish the rehab and sell it, for a savings of $15,000 (half of the profit) minus $9000 (the cost of the hard money) which would equal a $6000 net profit in addition to what he was already making.
- But the investor’s profit is even more dramatic if the rehab profit were more than $30,000.
- As a general rule, it’s more profitable to use hard money, or a transactional lender, if you’re considering splitting profits to borrow funds.
If you have any additional questions, contact me directly at DaveDinkelQuestions@gmail.com.
If you need hard money instead of transactional funding, contact me for referrals to private hard money lenders.
Be sure to check out BestTransactionalFunding.com for all your same-day double closing needs, including a list of Investor-Friendly Closing Agents in various states.
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