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Wholesaling Houses: Three Easy Steps to Determining Your Offer Amount

by Stephani Davis on January 28, 2010 · 13 comments

  

As a beginning wholesaler, figuring out how much to offer on a property is one of the most confusing aspects of the wholesaling process. When I was first getting started it would take me hours (sometimes days) of crunching numbers, running comps, and plugging figures into various formulas before I actually came to a decision about how much I should offer, and even then, I still didn’t feel very confident with my numbers.

It’s been three years now since I completed my first wholesale deal, and my method for determining offer amounts has changed quite a bit. These days I don’t use any sort of formula, I rarely run comps, and I can’t remember the last time I had to crunch numbers to arrive at my offer amount.  The strategy I use is pretty simple, and can be broken down into the following three steps:

Step #1

Choose a farm area and determine who the active investors are in this particular part of town. There are multiple ways of finding out who the active wholesale buyers are in any given neighborhood, some of which I have written about in this article, and also this one.

Step #2

Once I have located some active cash buyers in my farm area, I ask them if they are looking for more deals in the neighborhood, and if so, I find out EXACTLY what they are looking for, including price range, preferred type of construction, minimum square footage, etc.  I try to get as much information from them as possible so I have a very clear picture of what type of properties they are looking for and the prices they are willing to pay for them.

If I have the buyer’s first and last name I will do a search on the property appraiser’s website to check out what other properties they own and how much they paid for them.  This gives me an even better idea of what they are looking for in a deal.

Step #3

Once I have located a few of the active buyers in my farm area and done some research to find out what a deal looks like in their eyes, I then head to the MLS and start making offers on properties that fit their criteria, making sure to leave enough room in the deal for both myself and my end buyer.

Rinse and Repeat.

I’ve been using this strategy for the last few years quite successfully.   To me it is much simpler to just go directly to the end buyers and find out exactly what they are looking for. Approaching it from this angle removes much of the uncertainty and guesswork from the offer making process, and makes my job as a wholesaler much easier.

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{ 12 comments… read them below or add one }

[email protected] January 28, 2010 at 6:24 am

So you’re cutting out the middle man and going straight to the source.

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Stephani Davis January 28, 2010 at 6:33 am

Well, not really.

I’m still the middle man/woman.
.-= Stephani Davis´s last blog ..St. Louis and Stuff =-.

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[email protected] January 28, 2010 at 8:04 am

I know, I just felt like something odd and weird for no reason. I’m all amped up on Monster this morning so I’m a little crazy:)

This is a great way to minimize your time spent schlepping around town aimlessly by knowing your farm area and knowing exactly who’s buying there. I’m sure this speeds up the assignment process as well.

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Stephani Davis January 28, 2010 at 8:10 am

Have another Monster, Nick.

Hehe. :)
.-= Stephani Davis´s last blog ..St. Louis and Stuff =-.

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Stephani Davis January 28, 2010 at 8:12 am

P.S.
My last sentence got cut off accidentally- it should read “Approaching it from this angle removes much of the uncertainty and guesswork from the offer making process, and makes my job as a wholesaler much easier.”

The End.
.-= Stephani Davis´s last blog ..St. Louis and Stuff =-.

Reply

Joshua Dorkin January 28, 2010 at 9:04 am

Fixed that for you. Whoops!

Reply

Stephani Davis January 28, 2010 at 9:07 am

Thanks Josh! :)
.-= Stephani Davis´s last blog ..St. Louis and Stuff =-.

Reply

Shae Bynes January 28, 2010 at 8:23 am

Sounds easy enough to me! Great tips Steph! I know from first hand experience that you can’t get caught up in formulas. Forget the formulas and look at the facts. The property is only worth what people are willing to pay for it.
.-= Shae Bynes´s last blog ..Forgetting the basics =-.

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Wade Munday January 28, 2010 at 9:42 am

Stephani,

Wish you’d come to Atlanta and help train some of the wholesalers here.

I keep seeing “wholesale deals” where the wholesaler is using tax values, online valuation tools (e.g. trulia, zillow, etc.), and what the house previously sold for to justify their inflated ARV.

Sometimes, the wholesalers will make the statement, “well in a good market, the house would sell for …”

A quick check of recent MLS comps always results in much lower values.

As Shae indicated, at the end of the day, a property is only worth what someone is willing to pay for it.
.-= Wade Munday´s last blog ..Gallery 5 =-.

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Neil Uttamsingh January 28, 2010 at 7:51 pm

Stephani,

I am curious if you are familiar with Ron LeGrand’s method for determining the offer price on a wholesale deal.
Is it similar to your approach?
Do many wholesalers follow the Ron LeGrand approach?

Best Regards,
Neil.
.-= Neil Uttamsingh´s last blog ..The Secret to Relationship Success =-.

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Stephani Davis January 29, 2010 at 7:18 am

Hi Neil,

No, I’m not familiar with what Ron LeGrand teaches…

Steph
.-= Stephani Davis´s last blog ..St. Louis and Stuff =-.

Reply

Nichole January 29, 2013 at 11:53 pm

Hi Stephani! This information is so comforting! LOL! I am so stuck on these estimating costs, and everyone’s opinion seems to be that we should hold off on wholesaling until we learn and have experience in estimating these costs – whether by some form of apprenticeship with a rehabber or volunteering with appraisers, etc.Can you lead me to any information as to how you come up with your number – you’re cash buyers “formula”? Most buyers I’m working with have a formula that includes (- rehab cost), how would you work this formula without exact estimates? Thank you again so much! You’re training is invaluable! :D

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