Figuring out if you have a good deal or not
Dubuque, IA · Member since 2022 · 55 posts · 8 votes
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
Crazy debate over the 70% rule in this thread. I use it all the time in practice and get most of my deals around that figure. It's not a hard rule for me but a great starting place for a newby. If you can get a deal for 70% of ARV you almost always have a deal, seems silly to me not to teach it as a good starting guideline.
As for your question on repair cost estimates this is how I do it....... Speak to a few very active local rehabbers and ask them what they are paying per sqft on average to do a full gut rehab and also a cosmetic rehab on the type of property you are looking to contract. Once you have that figured out you can easily calculate a rough construction budget using the square footage and condition of the property you are trying to value. Hope that helped.
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
If you're looking at properties that are already on the market, how are you going to collect a fee? If it's on your local MLS then it's already listed with an agent and other agents will be able to see it. Unless you meant to say off-market and it was simply a typo.
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
Have you paid a contractor to walk a property with you? By doing that you will know next time how much a property similarly might cost. Another option is to ask people that are in your market what was their initial quote for the repair cost, if they have before/after pictures, and what was the end price for everything. Here in Columbus, I have contractors walk deals with me all the time. It has helped me know better what prices are going to be.
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
Thank you!!!
As Paul said if it's on market, listed then you are wasting your time. I would focus on cold calling for off market deals. You can bring value and do way more business. Most MLS agents won't allow you to wholesale unless you closed then sold it
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
@Heather Thuli I love that you are looking for deals on-market. There is nothing to say that you can't find a property on-market that's a good deal. And once you get the contract in place, you can assign the contract. And the nice thing about on-market wholesaling deals is that most wholesalers aren't looking there.
Don't use the 70% rule.
I wish people would stop saying this.
The 70% rule doesn't account for the risk factor involved per property.
A house with crumbling foundation and a similar house with the same ARV or cost of repairs are NOT THE SAME in the eyes of the backend buyer of the house after the flip. People simply won't easily buy a house with previous hystory of crumbling foundation even if it is fixed... or "claimed" to be fixed.
The 70% rule also doesn't account for the projected time it takes to flip a house.
And no... your predetermined "holding cost" incorporated in your 70% rule is not it.
The 70% rule is a death trap and is a sure way to derail your business.
Also, if we are both interested in the same property, and you give a 70% offer, you will ALWAYS be beat by me that will ACTUALLY give the highest possible offer I can make.
70% rule focuses on being "safe" and will have the effect of not getting many deals.
The right method focuses on property determined risk analysis to leverage "being safe" with the amount of allowable profit (for that safety margin).
I am so close to being ready to get my first wholesale deal. The only problem is I am struggling a lot to figure out if it is a good deal or not. I am looking at on-market properties. I feel like every time I see a potential house I have the repair price too high, but I could be off on my repair cost. Any tips for me? Thanks!
It is harder to make on-market properties work (for flipping at least). With all the extra costs involved closing on said transaction, you would really need to find a good deal... and that is obviously a contradiction right? MLS usually don't offer good deal.. the opposite.. MLS is where people want market value.
It is nearly impossible now to figure out numbers because things are at great risk to drastically change... the problem is no one knows exactly when and how it will change. Not sure if you want to buy an on market house now when prices are still high(is) threatening to drastically decline.
Again.. for rentals.. its a whole different game...
Don't use the 70% rule.
I wish people would stop saying this.
The 70% rule doesn't account for the risk factor involved per property.
A house with crumbling foundation and a similar house with the same ARV or cost of repairs are NOT THE SAME in the eyes of the backend buyer of the house after the flip. People simply won't easily buy a house with previous hystory of crumbling foundation even if it is fixed... or "claimed" to be fixed.
The 70% rule also doesn't account for the projected time it takes to flip a house.
And no... your predetermined "holding cost" incorporated in your 70% rule is not it.
The 70% rule is a death trap and is a sure way to derail your business.
Also, if we are both interested in the same property, and you give a 70% offer, you will ALWAYS be beat by me that will ACTUALLY give the highest possible offer I can make.
70% rule focuses on being "safe" and will have the effect of not getting many deals.
The right method focuses on property determined risk analysis to leverage "being safe" with the amount of allowable profit (for that safety margin).
The 70% rule is the place to start. It allows for a 15% profit and 15% for other costs like holding costs and closing cost. You can adjust based on market and the types of buyers you have.
Don't use the 70% rule.
I wish people would stop saying this.
The 70% rule doesn't account for the risk factor involved per property.
A house with crumbling foundation and a similar house with the same ARV or cost of repairs are NOT THE SAME in the eyes of the backend buyer of the house after the flip. People simply won't easily buy a house with previous hystory of crumbling foundation even if it is fixed... or "claimed" to be fixed.
The 70% rule also doesn't account for the projected time it takes to flip a house.
And no... your predetermined "holding cost" incorporated in your 70% rule is not it.
The 70% rule is a death trap and is a sure way to derail your business.
Also, if we are both interested in the same property, and you give a 70% offer, you will ALWAYS be beat by me that will ACTUALLY give the highest possible offer I can make.
70% rule focuses on being "safe" and will have the effect of not getting many deals.
The right method focuses on property determined risk analysis to leverage "being safe" with the amount of allowable profit (for that safety margin).
The 70% rule is the place to start. It allows for a 15% profit and 15% for other costs like holding costs and closing cost. You can adjust based on market and the types of buyers you have.
You repeat yourself. I know what the 70% rule is or does. What I have said is what the 70% rule DOES NOT account for and thus WHY it is bad.
Dude it is bad. OK let it go! Stop teaching your students this. It is BAD!
Then where do you start? NOT the 70%
You start with understanding the market.
Why? You need to know once the house is done, how fast you can move it.
You need to get a feel for what finishes are justified in which location and market.
You need to know what buyers pool are going to be interested in that house.
So 1) know your market.
2) learn how to do an ARV and include within that calculation the strength of that ARV. How likely it is for that ARV to remain the same by the time you are done with the house. (falls back on market).
3) Cost of repairs. Figure out what the cost of repairs are, including material inflation, time of year, location and market. All this has a say in the COR.
4) Know your risks involved. A lot of repairs are high risk repairs depending on the state you buy the house in. Know your risks
5) Once you know your risks you will have a clearer understanding what your holding costs will be.
5) Focus on several exit strategies so you can be sure you will be able to move the house
6) Mind your cpital gains
NOW...
Once you master all this the 70% rule is crap. Its BAD. It will cause you to deviate from this system that actually matters. 70% HAS NO PLACE doing it like I described above. You need to make offers based on the probability the offer will get accepted with the projected/desired profitability margin.,
This is how REAL Real Estate investors do it.
70% is in my honest opinion a JOKE!
The only thing the 70% rule does is make sure you won't get screwed making offers.
But in that case, do the 50% rule no? That way you are Absolutely sure you won't get screwed...
Who came to the decision that the magic number is "70"?? Why not 67.88% rule? Hell why not 69.99% rule?
See how dumb this is?!
There is no real scientific analytical reason for the "70". It is a number some idiot pulled out of their butt and ran with it.
@ Heather Thuli
You may be able to find something on-market the will provide a decent profit but if you are looking to make a better profit than off-market deals usually the best way to go. I would also suggest having a contractor walk the property with you. They can not only give you an estimated cost but they are also able to point out things that you may have not noticed before. I would be happy to discuss further. I look forward to hearing about your journey.
Crazy debate over the 70% rule in this thread. I use it all the time in practice and get most of my deals around that figure. It's not a hard rule for me but a great starting place for a newby. If you can get a deal for 70% of ARV you almost always have a deal, seems silly to me not to teach it as a good starting guideline.
As for your question on repair cost estimates this is how I do it....... Speak to a few very active local rehabbers and ask them what they are paying per sqft on average to do a full gut rehab and also a cosmetic rehab on the type of property you are looking to contract. Once you have that figured out you can easily calculate a rough construction budget using the square footage and condition of the property you are trying to value. Hope that helped.