Finally on BP (yea!). Now about the tools...?

Question

OK, this is my first BP post so, hello everyone!

To start off I'm in St. Petersburg/Seminole Florida and want to get into wholesaling. I've had a single family rental before a while back but aside from my homes, that's the only real estate experience I have. After hearing about the BP podcasts, I finally decided to quit eating Doritos while watching Dancing with the Stars and take action! I've attended a local wholesaling seminar and hit a few of the REIA meetings (last TBREIA meeting had Tracy Caywood as a speaker which was very cool!). I'm a software engineer and QA Manager for a company here and bizarre as it was, when I really decided to go for wholesaling, a project we were trying to finish started going sideways big time. It had increasingly eaten up my time (clocked about 80+ hours last week) but we're finally wrapping things up so take that fate!

That's the 20,000 overview. Now the tools. They were the second reason I signed up for the pro membership (first was to hear more about Brandon's Hawaii trip...). It seems like everyone uses the 70% rule of thumb for wholesaling MAO:

MAO = (ARV x 70%) - buyer's profit - repair costs - wholesellers profit

So for scenario where the ARV is $100K, buyer wants $20K profit, $20K in repairs, and I want $5K profit the MAO works out to:

MAO = (100 * .7) - 20 - 20 - 5 = $25K

But using the wholesaling calculator it takes a straight approach of ARV - repairs & profits so it's MAO is $55K (discounting holding and other costs for this example).

Wet-behind the ears here so I'm just trying to get a handle on things and understand. Very much appreciate any input!

- Mike

Mike Snyder · Answer

@Pablo Ottenwalder Jr. This was just an example to show what I thought was an inconsistency in info I was getting but...

You're right @David Dachtera! Not 30 minutes after I responded to your post I was listening to The Book on Investing in Real Estate with No (and Low) Money Down by @Brandon Turner and he literally goes over the difference between the 70% rule and the fixed cost method (the calculator). This includes, as you said, holding and closing! Thanks for helping set me straight on that difference. And he also indicates that even as a rule of thumb, the 70% rule doesn't work as well for lower or higher end houses.

Mike Snyder · Answer

@David Dachtera - Yes, for my question I did leave those out but for comparison, they would be factored into either BP Calculator: Wholesale or 70%. I hope this doesn't sound like a big sticking point, it's just a little confusing when starting out.

Mike Snyder · Answer

Sure @Loren Clive: MAO meaning Max Allowable Offer (the most I can offer for a property) and ARV the After Repair Value of the house which I guess may be subjective based on the buyer I would market it to. My confusion is why there is no "70%" type of margin that is a part of the BP Wholesale calculator? I'm not knowledgeable enough to say that's right or wrong, but it is a distinct deviation from the very general 70% rule of thumb.

David Dachtera · Answer

@Mike Snyder,

In your MAO calculations, you left out holding costs and closing costs as subtractions.

Loren Clive · Answer

Aloha, Mike and welcome! Even though I have been investing for years, I'm not familiar with all these acronyms.

Could you decipher please? Then maybe I'd understand your question and be able to help. Thanks.

Mike Snyder · Answer

I did see the 70% rule calculator on the tools, but just confused about why 70% is not factored into the wholesale calculator tool?