Hello ,stilling learning and reading the REI ,I'm a little confused on the percentage you have to use when making a deal for a wholesale.Does it depends on how much the property is worth?
ARVx70%-Repairs-your fee=MAO (Maximum Allowable Offer)
For example...you find a property that's worth $100,000 after repairs.
It needs $15,000 in repairs.
You want to make a $5,000 wholesale fee.
Your formula would look like this... $100,000 x 70% - $15,000 - $5,000 = your maximum offer of $50,000.
Although, 70% is a rule of thumb, I usually start at 60 - 65%
So it always 70% or can I use 75%
So it always 70% or can I use 65%
In general it's probably a good idea to widen your margin of safety. As we all know, before the downturn many novice investors banked on appreciation trusting market forces to give them their margin over time - but the market went the other way. I saw many investors go belly up - some going as far as to ask appraisers to fudge a value so they could refi out of hard money. Ben Graham advocates a 25% margin of safety. 30% or more is prudent. The wider the better IMO.
Thanks for the info Lonnie and Mark
@Lonnie Pickard So you have calculated a MAO of $50,000. What do you apply that too? Im new to this and I have my first house under contract. I need to get a better understanding of the numbers... Thanks so much.
Based on the example I used, $50,000 would be the most I could pay for the property.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.