ARV – Fixed Costs – Investor\u2019s Profit – Wholesale Fee – Rehab Costs = Maximum Allowable Offer<\/em><\/p><\/blockquote>\n Of course, to do this calculation, you must understand how to determine your fixed costs. The profit, fee, and rehab expenses are fairly easy to determine, but discovering the fixed costs will take a little explaining. The best explanation for fixed costs can be found in Author J Scott\u2019s book The Book on Flipping Houses<\/em><\/a>\u00a0(published by BiggerPockets Publishing), which states, \u201cFixed costs are comprised of the various fees, commissions, and costs associated with all parts of the investment project (outside of the actual rehab costs).\u201d<\/p>\n The author goes on to break out these expenses into more specific detail, adding up the total of the most typical fixed costs for his business:<\/p>\n These costs, all added together, give an investor the fixed costs for a property. Keep in mind, these are just the rates that J Scott outlined in his book and that he has seen applied to his business\u2014but they may not be the same for you. Every market is different, so spending some time determining what your costs would be on the listed items is important. For example, if you plan to sell to a landlord, you won\u2019t need to worry about the sales commissions, selling closing costs, home warranty, or MLS fees, because the landlord will be holding on to the property. However, if you sell to a house flipper, you would need to include these figures, because the flipper will be selling and will need to account for these numbers.<\/p>\n Related:<\/strong> Calculating Fixed Costs on a Rehab, Flip or Wholesale Real Estate Deal<\/a><\/em><\/p>\n So to determine your fixed costs, create a spreadsheet with the listed items and spend some time researching what these figures would typically be for your area. You don\u2019t have to get them all perfect, but estimate conservatively. The nice thing is, after you do this once, you won\u2019t need to do it again for the same kind of property, as long as that property is in the same area.<\/p>\n This is why we call them \u201cfixed costs\u201d\u2014because we\u2019ll use the same (fixed) number every time. For J Scott, that number was $16,400. What will yours be? Take an hour to figure it out once, and you won\u2019t need to do it again for that same property type and area.<\/p>\n Let\u2019s use the example of\u00a0wholesaler Beth and the deal she’s wholesaling at\u00a0123 Main Street house. We\u2019ll look at an example of how she used the Fixed Cost Method to determine her Maximum Allowable Offer. Earlier we determined that the home\u2019s ARV was an estimated $147,333. We also calculated, when discussing the 70% Rule, that the rehab costs would be approximately $20,000. This time, we\u2019ll use the Fixed Cost Method to come up with the Maximum Allowable Offer:<\/p>\nTypical Fixed Costs<\/h2>\n
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<\/p>\nAn Example<\/h2>\n
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