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How much are closing costs for a real estate wholesalers

Whether you’re wholesaling a property or not, the closing costs are the same (minus the agent fees). The core components of closing costs in real estate do not change with the exit strategy.

However, depending on the type of transaction the wholesaler is doing (double close, vs assignment vs wholetail vs novation), you can incur extra costs — we’ll discuss those in more detail later.

How much are closing costs?

Typically 2%-5% of the purchase price

For example, if the property is being purchased for $500,000 closing costs will be around $15,000 (3%).

What do Closing Costs include (not including commission)?

1. Loan Origination Fees: Charges from the lender for processing the loan.
2. Appraisal Fees: Cost of having the property appraised to determine its market value.
3. Title Insurance: Protects against any issues with the title.
4. Escrow Fees: Fees for the escrow service handling the transaction.
5. Recording Fees: Charges for recording the new ownership with the local government.
6. Home Inspection Fees: Cost of a professional inspection of the property.
7. Property Taxes: Prorated property taxes that are due at closing.
8. Survey Fees: If required, the cost of a property survey.
9. Attorney Fees: If applicable, fees for legal services related to the transaction.
10. Prepaid Interest: Interest on the mortgage from the closing date to the end of the month.
11. Private Mortgage Insurance (PMI): If applicable, upfront PMI payments.
12. Homeowners Insurance: The first year’s insurance premium may need to be paid at closing.
13. Transfer Taxes: Taxes imposed by the state or local government on the transfer of the property.
14. Flood Certification: Fee to determine if the property is in a flood zone.
15. HOA Fees: Any prorated homeowners association dues or transfer fees.

See this video course on the method that reduces risk in Wholesaling:

 

How long does it take to close a wholesaling deal?

A wholesaling deal typically takes anywhere from a few days to a few weeks to close. The timeline depends on factors like the speed of contract negotiation, finding an end buyer, and completing due diligence. On average, you can expect the process to take around 15 to 30 days.

How Much Are Closing Costs for a wholesale Assignment fee

 

What is an Assignment?

An assignment in real estate wholesaling is a strategy where the wholesaler enters into a purchase contract with the seller of a property and then assigns their rights and obligations under that contract to an end buyer. Essentially, the wholesaler acts as a middleman, securing the property at a lower price and then assigning the contract to another buyer for a fee. This fee, known as the assignment fee, is the wholesaler’s profit.

Closing Costs on an Assignment Fee

When a real estate wholesaler uses the assignment strategy, the closing costs involved are generally lower compared to other strategies like double closing. The primary costs include:

– Title Insurance: Ensures the buyer receives clear ownership of the property.
– Escrow Fees: Fees for the escrow service managing the transaction.
– Recording Fees: Charges for recording the new ownership with the local government.
– Attorney Fees: If applicable, for legal services related to the transaction.
– Assignment Fee: Paid by the end buyer to the wholesaler, separate from the traditional closing costs.

These costs are typically borne by the end buyer, who takes over the original purchase contract and completes the transaction with the seller. The wholesaler may incur minimal costs related to the contract assignment process but avoids the extensive closing costs associated with a double closing.

Pros and Cons of an Assignment

 

Pros:

1. Lower Closing Costs: Since the wholesaler avoids the costs associated with buying and then reselling the property, the overall transaction expenses are reduced.
2. Quick Transactions: Assignments can be completed relatively quickly, allowing wholesalers to close deals and realize profits faster.
3. Reduced Financial Risk: The wholesaler does not need to secure financing or hold the property, which minimizes financial exposure and risk.
4. Simplified Process: The assignment process is straightforward, involving fewer legal and logistical steps compared to double closing.

Cons:

1. Potential for Lower Profits: The assignment fee may be lower than the profit made through a double close, as it is often negotiated with the end buyer.
2. Disclosure of Profit: The end buyer sees the assignment fee, which discloses the wholesaler’s profit margin and could lead to renegotiations.
3. Limited Control: The wholesaler has less control over the final sale since they are not the actual seller of the property.
4. Buyer Reliability: The deal hinges on the end buyer’s ability to close, which can introduce uncertainty and risk if the buyer fails to complete the purchase.

How Much Are Closing Costs when double Closing a real estate wholesale deal?

 

What is a Double Close?

A double close, also known as a simultaneous close, is a strategy in real estate wholesaling where the wholesaler actually purchases the property from the original seller and then immediately sells it to the end buyer. This involves two separate transactions: one where the wholesaler is the buyer and one where the wholesaler is the seller. The wholesaler profits from the difference between the purchase price and the selling price.

Closing Costs on a Double Close

When using the double close strategy, the wholesaler incurs closing costs for both the purchase and the sale of the property. These costs can be higher compared to an assignment. Key closing costs include:

– Loan Origination Fees (if financing): Charges from the lender for processing the loan.
– Title Insurance: Ensures clear ownership of the property for both transactions.
– Escrow Fees: Fees for the escrow service managing both the purchase and sale transactions.
– Recording Fees: Charges for recording the new ownership with the local government twice.
– Property Taxes: Prorated property taxes for the period the wholesaler owns the property.
– Transfer Taxes: Taxes imposed by the state or local government on the transfer of the property.
– Attorney Fees: Fees for legal services related to both transactions.
– Home Inspection Fees (if applicable): Cost of a professional inspection for the purchase.
– Miscellaneous Fees: Other fees that may include courier, notary, and administrative costs.

Since the wholesaler is essentially acting as both buyer and seller, they are responsible for the closing costs on both ends, which can add up quickly.

Pros and Cons of a Double Close

Pros:

1. Higher Profit Potential: The wholesaler can potentially make a larger profit compared to an assignment fee, as the end buyer is less likely to negotiate down the profit margin.
2. Control Over Sale: The wholesaler has full control over the sale to the end buyer, allowing for more negotiation power and flexibility.
3. Confidentiality: The profit margin is not disclosed to the end buyer, which can prevent renegotiations and maintain the wholesaler’s leverage.

Cons:

1. Higher Closing Costs: Double closing involves paying closing costs twice, once for the purchase and once for the sale, which can significantly reduce the net profit.
2. Need for Financing: The wholesaler may need to secure short-term financing to purchase the property, which can be costly and complex.
3. Increased Financial Risk: Holding the property, even briefly, introduces financial risk, including market fluctuations and potential complications with the end buyer.
4. Longer Process: The double close process is more complex and time-consuming compared to an assignment, potentially delaying the wholesaler’s profit realization.

In summary, while a double close can offer higher profit potential and more control over the transaction, it also involves higher closing costs, increased financial risk, and a more complex process. Wholesalers must carefully consider these factors when deciding to use a double-close strategy.

How Much Are Closing Costs for a Real Estate Wholesaler?

 

What is Wholetailing?

Wholetailing is a hybrid real estate wholesaling strategy where the wholesaler purchases a property, makes minimal repairs or improvements, and then sells it on the open market, often to retail buyers. The goal is to quickly flip the property for a higher price without investing significant time or money into extensive renovations.

Closing Costs on Wholetailing

When a wholesaler uses the wholetailing strategy, they incur closing costs for both the purchase and the subsequent sale of the property. These costs can be substantial, as the wholesaler essentially completes two separate transactions. Key closing costs include:

– Loan Origination Fees (if financing): Charges from the lender for processing the loan.
– Title Insurance: Ensures clear ownership of the property for both transactions.
– Escrow Fees: Fees for the escrow service managing both the purchase and sale transactions.
– Recording Fees: Charges for recording the new ownership with the local government twice.
– Property Taxes: Prorated property taxes for the period the wholesaler owns the property.
– Transfer Taxes: Taxes imposed by the state or local government on the transfer of the property.
– Attorney Fees: Fees for legal services related to both transactions.
– Home Inspection Fees (if applicable): Cost of a professional inspection for the purchase.
– Repairs and Improvements: Costs for any minor repairs or improvements made to increase the property’s marketability.
– Miscellaneous Fees: Other fees that may include courier, notary, and administrative costs.

These costs, along with any holding costs such as utilities and property maintenance, must be factored into the wholesaler’s budget.

Pros and Cons of Wholetailing

 

Pros:
1. Higher Profit Potential: Wholetailing can yield higher profits compared to traditional wholesaling, as the property is sold to retail buyers at market prices.
2. Market Appeal: Minimal repairs and improvements can make the property more attractive to retail buyers, leading to a quicker sale.
3. Increased Control: The wholesaler has control over the property and the selling process, allowing for strategic pricing and marketing.
4. Potential for Faster Sale: With minimal work required, the property can be listed and sold relatively quickly.

Cons:
1. Higher Closing Costs: Like a double close, wholetailing involves paying closing costs twice, which can significantly impact the net profit.
2. Need for Financing: The wholesaler often needs to secure short-term financing to purchase and hold the property, which can be costly.
3. Increased Financial Risk: Holding the property introduces financial risk, including potential market fluctuations and unexpected repair costs.
4. More Time-Consuming: Wholetailing requires time for purchasing, making repairs, and marketing the property, which can delay profit realization.

In summary, while wholetailing can offer higher profit potential and appeal to retail buyers, it also involves higher closing costs, increased financial risk, and a more time-consuming process. Wholesalers need to carefully weigh these factors when considering the wholetailing strategy.

How Much Are Closing Costs for a Novation deal when Wholesaling real estate

What is a Novation Deal?

A novation deal is a unique real estate strategy where the wholesaler enters into a contract with the seller and then secures an agreement to replace the original purchase contract with a new one involving an end buyer. The wholesaler acts as an intermediary, facilitating the transaction between the seller and the end buyer, but does not take title to the property. The original contract is essentially replaced, or “novated,” with a new one.

 Closing Costs on a Novation Deal

In a novation deal, the wholesaler typically incurs minimal closing costs, as the transaction focuses on facilitating the replacement of contracts rather than completing two separate transactions. The primary costs include:

– Legal Fees: Costs associated with drafting and reviewing the novation agreement and other legal documents.
– Title Insurance: To ensure clear ownership for the end buyer.
– Escrow Fees: Fees for the escrow service managing the transaction.
– Recording Fees: Charges for recording the new ownership with the local government.
– Miscellaneous Fees: Other fees that may include notary, courier, and administrative costs.

These costs are usually borne by the end buyer and the original seller, with the wholesaler’s expenses primarily limited to legal and administrative fees related to the novation process.

Pros and Cons of a Novation Deal

 

Pros:
1. Lower Closing Costs: Since the wholesaler does not take title to the property, they avoid the extensive closing costs associated with buying and reselling.
2. No Need for Financing: The wholesaler does not need to secure short-term financing to purchase the property, reducing financial risk and complexity.
3. Minimal Financial Risk: The wholesaler does not hold the property, eliminating the risk of market fluctuations and holding costs.
4. Faster Transactions: Novation deals can be completed more quickly than double closes or wholetailing, allowing for faster profit realization.

Cons:
1. Complex Legal Process: Novation agreements can be legally complex and may require careful negotiation and drafting to ensure all parties’ interests are protected.
2. Reliance on Seller Cooperation: The success of a novation deal depends on the seller’s willingness to agree to the novation and cooperate throughout the process.
3. Limited Control: The wholesaler has less control over the property and the final sale, which may lead to potential complications with the end buyer.
4. Disclosure of Profit: The seller and end buyer are aware of the wholesaler’s involvement, which may impact negotiations and profit margins.

In summary, while novation deals offer lower closing costs and reduced financial risk, they also involve a more complex legal process and reliance on seller cooperation. Wholesalers must carefully consider these factors when deciding to use a novation strategy.