Wholesalers continue to gain momentum, but many investors remain concerned that they are overpaying for closing costs. So how can wholesalers ensure they are not being taken advantage of and reduce real estate closing fees that can impact profit margins?
There are many newer investors in the market today and few have much experience with closing costs and loan fees. Unfortunately, some "professionals" and sellers take advantage of this, or at least charge as much as they can get away with.
So one of the best ways for those flipping houses to avoid cheating and keep contractors honest is to always get multiple quotes on everything. That's not to say that going with the lowest bid is always best (bait and switch is still rampant these days), but it will serve as a good barometer.
Everything in the real estate business is negotiable. Some can give the bottom line, the lowest can do quotes up front, many others have already built in some cushion for negotiation. You won't find out unless you ask. So ask for discounts. But also know when to recognize value and valuable service, and avoid beating partners by making it more profitable for them not to close your deal.
Investing and wholesaling out of the area is also becoming more popular and this can often lead to high closing costs for everything from the origination fee to appraisals, title work and realtor fees. Get deals on all these items.
Also follow the agents. While many adhere to a strict code of ethics for real estate agents, some have been caught charging new investors more than the standard. Generally, the seller pays all sales commissions. So if the agent asks for more money, it might be fat that should be trimmed. One exception is perhaps dirt cheap foreclosure, where agents may not feel it's worth getting involved or helping, even though there are clearly ways to make these acquisitions without their help.
Large or small mortgage loan fees and closing costs continue to make up a large portion of gross income and can cut deeply into profits. Those who watch and are inspired to jump into wholesale through reality TV shows like Flip This House often don't realize this.
The smart solution may be to look for legitimate double closing methods or simply allocation or wholesale contracts that can keep that money in the business.
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