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How Much Should I Offer on a Wholesale Real Estate Deal?

This time, we are going to talk about wholesale deals . Wholesale deals are where people first cut their teeth in this business. They are the simplest deals . Basically, you find a deal and get some comps on the property . You will find out what other houses are being sold in similar locality. It is public record, and you can find this out at your local courthouse. So, find the deal, get your comps, and make the offer. However, there are time it is reversed . There are times that when you are talking to anyone , you can make the verbal offer right then and there to get the deal going . If you are done with your offer and it is verbally accepted, you can come back and get your comps and check out what the real value is. It’s called due diligence. It’s like doing your preparation and making sure you don’t get yourself in a hole. You need to do research at this period. Any deal without due diligence , comps, research, or checking things out can get you in big trouble . It is highly suggested to make offer first though , and get your numbers going so you don’t discarded time on dealing that you never get somewhere

Most of the time ,   the seller will tell you what he is asking for. You don’t have to make an offer or counter-offer on that first call , especially if you are new and just starting in this business . If he says he wants $120,000, you don’t have to know right off the bat what it is worth, this is specially true if you are not familiar with the area . In some areas where I know right away, the price of the house . Even you are just a beginner , this will not going to happen . So, don’t be afraid to accept the offer on the phone and   tell hom that you are doing some homework , you are interested in the house, and will get back to him soon. So, find the deal, get the comps , don’t hesistate to make the offer and get the house beneath contract, find a buyer, and close. Note that we are not talking specifically about wholesaling here, but that is the gist of it.

We are going to discuss learn the real price is . What kind of offer should you make?   You can use the ARV . You have probably heard someone ask what the ARV is. The ARV is the Average Retail Value. It is how much those comps tell you know the real price of the house . Once you study the area and find out how much houses are marketing for, you are going to get the comps. That is the ARV.

There are two ways to do this, to assume the house and do some repairs . Here is the first option : Let’s take the selling price of the house, $150,000 (which might be the ARV), and you are trying to come up with how much to offer for this house . You are not planning on buying it , you can get it under contract and sell it to other buyers . You have to leave enough profit in there so that someone else can do the repairs , list the house or sell it without listing it , and earn some money back . They have to deal all of their expenses.

One way to do it is to take how much you figure that next individual is selling it for, let’s say $150,000 . Then, you can minus the 4 – 6 months  for mortgage payments that they will have to make while they are paying for that house, subtract funding fees (points), subtract repairs, subtract both sets of their closing costs, subtract taxes, subtract insurance, subtract utilities, etc. Am I confusing you yet? You can use this better system I share with you

Here’s your second option : What we do is we take the ARV in that area , of houses in good condition and subtract 30% . It is ARV minus 30% . Then you subtract how much the repairs are going to be. The rule of thumb is ARV (after the repairs or aka after repair value), minus 30%, minus repairs. Then you subtract how much profit you want to make on the deal. If it is a $150,000 house,   but don’t expect to earn $30,000 or $40,000 on this . You have to leave the $30,000 for the guy who is going in and doing all of the work, making all of the repairs, plus making the mortgage payments. Wholesaling is the first option . In my eyes, if you make $4,000, it’s a good deal. I have made $20,000 on homes like these in the past, but usually you are looking to make only $4,000 to $5,000. It means you are flipping these .

To recap, you will take the ARV of $150,000 minus 30% . That leaves you with $105,000 . Then you subtract the $20,000 in repairs . You are down to $85,000 . If you want to make $5,000 in the deal , you are down to $80,000 . I would then offer $79,000 to whomever I am buying it from. Then you have to sell it for around $85,000 though .

The bottom line formula is this: After deducting the repair, mins the 30%, plus minus repairs , this is what most rehabbers are looking for . Most of the them are finding for a specific profit , say $30,000. ARV is very worldwide. Good Luck!

 

Nick Cifonie is a long-time real estate investor, speaker, and mentor. Nick has bought and sold millions of $’s in single family homes and multi-family properties, using techniques including bird-dogging, wholesaling, lease-options, subject-to transactions, buy and holds, seller financing, retail flips, assignments, options, auctions, and has even flipped property on EBAY! Nick is the current host of the popular “Real Estate Investor TV”, a fun, educational series found at http://www.rei-tv.com