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
Join the Largest Real Estate Investing Community
Basic membership is free, forever.