Few weeks ago I had a conversation with a fellow investor. He contacted in order to provide me with leads for the area that he was not investing on. Luckily he had no plan, for now, to buy houses in the Worcester / Framingham area, so he offered to send my way all the leads he has for these cities. I basically spent a good 20 minutes interviewing him on the quality of his leads (I didn’t want MLS leads), amount of information he plans to provide with the leads and so on. After that 20 minutes I was ready to start working him. The timing was perfect because lately I am experiencing an increase number of request from rehabbers and cash buyers for more properties. So the extra leads or deals would be very helpful. However, before committing myself to these new endeavor, I had to ask one of the question that a lot of Rookie investor are nervous to ask: “How much would I be charged per lead I end up buying?” His answered was not only a chock and also reminded me a quote from one of my mentors: “you better know and understand your market.”
Ok let’s get back to his answer. The investor wanted me to commit, by signing a contract, to pay him $25K per leads that I would end up buying. Yes, I had to admit that the $25K finder’s fee took me by surprise. I want to be clear that my reaction was not because I did not want to pay top dollar for his services. However, at this point I had to ask myself if our investor had an idea of the neighborhoods we were talking about. Adding 25K finder’s fee to the Wholesaler fee and the rehabber profit would kill most of the deals considering the after repair value of the properties in these neighborhoods. In addition I had to ask myself why would I pay 25K for just a name and an address when the competition is currently charging way less while, sometime, providing me with more than just a name and an address.
At the end I had to explain to the investor that he will need would need to review his fee to a more realistic number in order for us to work together. This conversation had reinforced my belief to research and understand the market where I am investing in. At least, it would prevent me to create any unrealistic and false expectation.