Wholesaling question?

Now the seller currently owes $157,000 on the property. Would it be an insult for me to offer the seller $100,450 knowing that they owe more than my offer. Should I at least offer what the seller owes on it, or should I not even worry about what the seller owes and just make offers based upon my numbers? I wanted to get an opinion from an experienced wholesaler on how you generally make offers. Any help will be appreciated.

Edited: 06/26/2010 at 07:21AM

Heather Pelletier

· Massachusetts

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Icon_minipost Feb 22 '09, 12:50 AM

Why would you consider offering 157K if your MAO is 100K. Offer what you are willing to pay. Keep in mind I am NOT an experienced wholesaler, I just don't think you should EVER offer more than you are willing to pay.

Good luck,
Heather

Edited: 06/26/2010 at 07:21AM

James Hiddle

Real Estate Investor · Altus, Oklahoma

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Icon_minipost Feb 22 '09, 01:59 AM

No homeowner is going to sell you a home less on what they owe. Plus that would leave no equity and put the home upside down.

Edited: 06/26/2010 at 07:21AM

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Feb 22 '09, 04:19 AM

I think you're miscalculating your MAO. You wouldn't normally include the holding costs. If your buyer's criter is 65% of ARV, then:

65% of $219K = $142.
Less repairs of $10K is $132K
Less your fee of $10K is $122K.

Still below what the owner owes, so you would have to do a short sale to make this work.

Edited: 06/26/2010 at 07:21AM

Jon Holdman, Flying Phoenix LLC

Jim Doine

Real Estate Investor · Myrtle creek , Oregon

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Icon_minipost Feb 22 '09, 04:45 AM

Paul, Generally the only time an owner might take less than what is owed would be a short sale situation. I'm also curious why you are figuring such a large amount for holding costs. You should have a buyers list ready before you put a property under contract, and you quickly assign the contract to one of them. There should be no holding costs to you. Jim

Edited: 06/26/2010 at 07:21AM

Will Barnard

Rehabber · Santa Clarita, California

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Icon_minipost Feb 22 '09, 05:25 AM

I think Jon hit the numbers more accurately so I would use that as your MAO. In doing so, you need to get both the seller and the bank on board with a short sale.

Edited: 06/26/2010 at 07:21AM

Will Barnard, Barnard Enterprises, Inc.
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Chevis Duncan

Plumbing Contractor · rutherfordton, North Carolina

66 posts
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Icon_minipost Feb 22 '09, 07:06 AM

guys, why would you not put in your holding cost in the formula? i understand it shouldnt be an expense with a good buyers list, but just in case it was, i would want it covered in my offer, so its not out of pocket or into my profit. please explain your thinking.

Edited: 06/26/2010 at 07:21AM

Will Barnard

Rehabber · Santa Clarita, California

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Icon_minipost Feb 24 '09, 12:00 AM

Chevis, the reason for the max offer of 65% is because holding costs are already factored into that figure. Or you could offer 70% less holding costs as another example.

Edited: 06/26/2010 at 07:22AM

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Feb 24 '09, 12:15 AM

Will's exactly right. Another reason is that it's likely your buyers will use 70% of AVR or 65% of ARV as their threshold. As long as price plus repairs are below their threshold, they will buy.

For a flip, if purchase plus rehab is 70%, and you're using hard money, and you can turn the property in six months, you'll make 10-15% of ARV as your profit. All these other costs, including the holding costs, and in the other 15-20%.

Edited: 06/26/2010 at 07:22AM

Jon Holdman, Flying Phoenix LLC

Will Barnard

Rehabber · Santa Clarita, California

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Icon_minipost Feb 24 '09, 12:38 AM

Of course if you can get an offer of 65% less repairs AND less holding costs, more power/profit to ya!

Edited: 06/26/2010 at 07:22AM

Will Barnard, Barnard Enterprises, Inc.
E-Mail: info@barnardenterprises.com
Website: http://www.barnardenterprises.com
info@barnardenterprises.com

Paul Huntley

Real Estate Investor · Matthews, North Carolina

28 posts
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Icon_minipost Feb 24 '09, 03:23 AM

I need help with this deal.
ARV 219,000
(.65*219,000)-10,000[repairs]-21,900[holding]-10,000[wholesale fee] = $100,450 MAO

Now the seller currently owes $157,000 on the property. Would it be an insult for me to offer the seller $100,450 knowing that they owe more than my offer.

So should I always take what the seller owes on their property into consideration when making my offers? Does a deal ever make sense if my MAO is less than what the seller owes on it (without having to do a short sale)? Would this be a situation where I would ask for seller financing? Basically, is this a good wholesale deal, or is it a dud?

Edited: 06/26/2010 at 07:22AM by Paul Huntley

Chevis Duncan

Plumbing Contractor · rutherfordton, North Carolina

66 posts
31 Influence

Icon_minipost Feb 24 '09, 07:31 AM

thanks jon and nationwide, the numbers make sens, i didnt catch it before when reading...jumped ahead of myself....paul, my opinion, though not worth much, offer it, all they can do is say no. i have a deal in the making right now where the owner is bringing48% to the table out of their pocket to get out of the house. if this goes through, and it looks good, it will be my biggest money maker to date! good luck!

Edited: 06/26/2010 at 07:23AM