Determining wholesale price?

Question

I understand the formula used by most wholesalers is 70% ARV minus rehab minus your fee.......my question is when I am making an offer to the seller, for example

100,000 arv

15k repairs

10k fee

Would my offer price to the seller be 55k and then I add the 10k in when I find a buyer and sell for 65k?

Justin Lenk · Answer

$55k would be the number you pitch it at. Since most people look for 70% ARV minus repairs for FIX AND FLIPS (analyzing rentals are different) you have to factor in your fee to be able to pitch it for that price... which is why your offer would be $45k not $55k, again.. $55k is what people will pay (assuming arv and repairs are accurate). The difference between your acquisition and disposition is your spread (using your example $55k - $45k = $10k to you).

Justin Lenk · Answer

No, your offer would be $45k, not $55k. The formula is ARV x 0.70 - repairs - your fee = MAO. So in the example you used it would be $100k x 0.7 = $70,000 - $15k = $55,000 - $10,000 = $45,000 which is your MAO. This is just a general "rule of thumb"... the numbers have to be accurate for it to hold true though. Bottom line if it's a deal you'll move it and if it's not, you wont.

Jeff Copeland · Answer

Using this formula*, your offer price to the seller would be $55k.

You would market the property to investors at $65k net. This implies your assignment fee is built in to the asking price.

*The validity/effectiveness of the 70% ARV - Repairs formula is debatable. In many (appreciating) markets, those days are long gone, unless you have a really desperate seller and no competition - an increasingly rare find.

Julie Marquez · Answer

Go up to "TOOLS" and use the wholesale calculator. It goes through every cost imaginable and can help you understand all the pieces involved. Best to you!