Equity in Wholesale?

9 Replies

Hello BP,

I was wondering in order to have a good wholesale deal, does the home need to have a lot of equity?

I have another question, for example:

If a home was bought at $200,000, the fair market value is now $150,000.

What options could I take to turn this into a good deal? What type of offers?

Thanks!

@Denny Le welcome to BP.

No a property does not have to have equity as you can do a short sale. This is where the bank takes less than is owed as payment in full. Short sales are not easy and can be a pain in the rear, but it is an option.

If a home was bought at $200,000, the fair market value is now $150,000.

Well if they paid all cash there is no problem if you can meet on a price that works. More realistically they used a loan to buy the house and you are back to doing a short sale. Good luck - Ned

If it is to be a flip, then having equity is a necessity. If a buy and hold, it really depends, though equity usually means you are buying at a discount which is typically necessary for good cash flow, terms play a huge role.

With a negative equity deal, you can go for a short sale or if with the proper terms, you can generate cash flow, then you can work that angle.

It depends on the deal. For example I buy homes at full retail value if the seller will finance at a low enough interest rate. I have done a few now where the seller has agreed to 1% above CDR so I have a 90% loan at 1.7% interest. Deals like that need no equity as the loan is really the deal.

But for "normal" flipping you have to ask why would someone buy it? If there is no equity then they could buy any house in the city at retail. So yes they need equity.

Originally posted by @Samantha Lotti :

@Ned Carey  @Will Barnard 

How much equity on average should be in the home if a person wants to wholesale the property?

How much equity by percentage or dollar amount? In either question, it depends because the answer ranges from property to property, area to area, price points to price points. Typically, if your purchase,plus rehab, plus wholesale fee is around 75% of the ARV, then you have a deal, but again, that figure ranges for many different factors.

If you are talking about a $75k ARV property, 75% won't be a large enough spread! you would need 65% or better.

@Dean Letfus  Thanks for your input. I'm not sure what CRD stands for. Can you interpret please. Unfortunately, I do not know all the real estate lingo just yet. :)

@Will Barnard  Thank you as well for responding. To answer your question, I was thinking equity in percentage. But with you asking the question and me being unsure of the answer, that tells me that I still have a little more research to do to completely understand percentages and numbers.  Do you have any references for me to go read or get good information from on this topic?

Any advice is greatly appreciated. 

It's tough being new... but I am loving the knowledge! :)

@Dean Letfus  @Will Barnard  

Thank you both for your input. 

Will.... I will for sure check out the link you shared. I so much want to get the percentage and numbers part as fast as I got everything else. :)  I try not to make it more difficult than it is. Don't over think it... I tell myself. 

Again... thanks!