Making Offers, Real Estate Investing Formulas

An “Oldie But NOT Moldy”!  This is a re-post of an OLD episode, filled with goodies that I thought you’d love to hear!

Nick

Making offers when wholesaling comes down almost to science. This Newbie Tuesday episode makes it easier for the beginning real estate investor to “talk the talk”, even if he or she has never done a deal.

There’s plenty of “stuff”, (yup, I said STUFF!) to consider when making an offer on a wholesale property, but how much to offer shouldn’t be one of the details you sweat over. When your business is running like a fine tuned machine, you’ll be making offers on wholesale junkers and houses daily, or at least weekly, so make sure you know the numbers!

Once you know the formula, as well as what your particular buyers are looking for, you’ll be able to pop out the offer in a matter of seconds. The bottom line is you have to make sure you please the seller, leave enough profit for your buyer, as well as make some moolah yourself!

Ok… the long version, is take the value of the house after it’s been renovated and in like new shape, subtract the mortgage payments your buyer will make while he rehabs and resells the house, subtract the amount of repairs, subtract taxes, insurance, closing costs when buying, closing costs when selling, points, tax stamps, attorney fees, a 5%-10% “fudge factor for the mistakes that will be made and additional poo-poo that will come up, figure out how much you want to make as the wholesaler and subtract that, consider how much the seller will negotiate and take a little off, then…

STOP!

Ok, I couldn’t resist… you “could” do it that way, but um. ::yack::

Here’s the formula that will please “most” (I said most, get to know your buyers) “fix and sell” or “fix and rent” investors who’ll come to you for the property… so learn this formula, and you’ll at least sound like you know what you’re doing. This will cover just about anything that can come up, and leave you making a profit. (disclaimer - if you do this and still lose money, it’s not MY problem!)

This formula also works in the case your buyer ends up using hard money. It’s close to the amount most HML’s will be willing to fund.

After Repair Value (ARV), Minus 30%, Minus the repair costs, Minus the profit you want to make in the deal, Minus AT LEAST $5,000 in case you screwed up, EQUALs the highest you should contract a house to wholesale.

I suggest you still offer less!

Here’s a practical example.

• A house is worth $150,000 AFTER the repairs are completed. (ARV)

• I SUBTRACT 30% ($45,000) to cover all the costs and fees the buyer will and up paying. I now have $105,000.

• I SUBTRACT the repairs the house will need, let’s say $20,000. I am now at $85,000.

• I SUBTRACT $4,000 that I would like to make. I am down to $81,000.

• I SUBTRACT another $5,000 because I’m new and likely screwed some estimate up. I am now at $76,000.

• I offer the seller LESS than $76,000.

At this purchase price, my buyer can do the rehab, pay all the fees he’s/she’s going to come across, take a reasonable time to sell the house, and still make a good amount of profit… which of course will have him ready to buy from me the NEXT time as well.

Oh yeah… make sure you charge your buyer more than you’re paying your seller.

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Posted on Tuesday, October 20th, 2009.
Categories: Newbie Tuesday, REI-TV, Tips and Strategy, Wholesaling.
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