I am a new whole seller and I met with my first cash buyer today. When I asked him what he wants his percentage profit to be, on average, he said he would like to see 20% of the ARV. Is this a reasonable amount and will it be possible to find deals to meet his criteria? Thank you for all replies!
If he is talking about 20% of ARV prior to having the rehab done, than he MIGHT be talking somewhat reasonably. The standard wholesaling formula is (ARV X .70) - repair costs - your profit = offer price. Usually that number will equal roughly 40-50% of the ARV. My opinion is that, unless he is looking for absolute dumps to rehab, he is being a bit unreasonable.
Yes & yes. Don't toss the first deal you come across at him. They don't want to waste their time looking at bad deals. Believe me when I say he'd rather you bring him 1 good deal than 20 decent deals
My profit margin is 20% of cost of project, not ARV. I do have a 20% cushion on my rehab cost. For instance, if I can buy for $50,000 and rehab is $10,000 I will count rehab as $12,000. My cost becomes $50,000 + 12,000 + holding costs(ie,$3,400) for a total of $65,400. I then want profit of $13,080.
Hope that helps.
Also it depends on the size of the deal bigger deals less percentage but more profits is very acceptable
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