# Understanding the Amount of Your Buyer’s Profit on an Assignment Deal

## Understanding the Amount of Your Buyer’s Profit on an Assignment Deal

One thing that is not stressed enough in our presentations to our buyers is how much profit is on the table for them. By understanding the buyer’s profit, we can better inform our buyers as to the amount they can expect to make. It also can strengthen our position when negotiating the wholesale fee.

When calculating an offer, understanding the type of market we are in will make us more effective. If we are in a cold market, the buyer has a stronger negotiating position. In a hot market, the seller has the advantage. We are currently in a hot market. Therefore, we need to use strategies that will strengthen our offers and help our bottom line.

Let’s run through some calculations and see what we can do to make our offer more competitive. As we run the numbers on an assignment deal, pay close attention to adjustments that can be made to strengthen our offer:

ARV- \$250,000

Rehab- \$30,000

Wholesale Fee- \$8,000

Now, let’s calculate what our max offer will be with this information:

\$250,000- ARV

\$200,000- All-In Price

Less \$30,000- Rehab

Less \$8000- Wholesale Fee

\$162,000 Max Offer

Now, let’s calculate what our buyer can expect to make on this deal. We must first determine if we are in hot or cold market, as this will influence some of our decisions regarding the property. Our current conditions tell us that market conditions are hot. So, this is how to determine the profit our buyer will make from the above offer:

First, we must subtract the all-in price from the ARV. Next, because it is a hot market, our buyer should consider paying costs such as real estate fees, closing costs and holding costs. This would cost about 40% of the gross profit. The buyer would keep 60% of the gross profit or the net profit. Let’s look at it as a formula:

\$250,000- ARV

Less \$200,000- All-In Price

\$50,000- Gross Profit

X .6- Buyers Percent of Gross

This \$30,000 profit would be attractive to most buyers. However, closing the gap between the asking price (\$179,000) and our max offer (\$162,000) may be hard to overcome. So, let’s look at the things we could adjust to present a more competitive offer:

\$250,000- ARV

\$212,500- All-In Price

Less \$30,000- Rehab

Less \$5,000- Wholesale Fee

\$177,500- Max Offer

As you can see, our new max offer (\$177,500) is much more competitive and the gap with the asking

price (\$179,000) is much easier to bridge. Let’s calculate the new buyer’s profit and see if it is a good

\$250,000- ARV

Less \$212,500- All-In Price

\$37,500- Gross Profit