New Wholesaler here! Question about ARV

14 Replies

Hello everyone!

I am a licensed Realtor here in Richmond, VA and have been trying to understand the ART of wholesaling. I do have a question regarding the price I (the wholesaler) negotiate with the seller. What is the ARV (percentage) that I should look to get the property at, so that I may turn around and assign that contract to an investor?

I also read somewhere on BP that wholesalers are negotiating properties at 70% ARV (minus repairs, etc), but I was under the impression that the 70% ARV figure was for investors? I thought the wholesalers ideally should stick to the 50-60% ARV? (or any other ARV suggestions for the wholesaler would be greatly welcome)

I would greatly appreciate it if someone could help clarify the purchase ARV percentage for the wholesaler.

Thank you sincerely,

When wholesaling I use 70% ARV minus repairs minus my wholesale fee = contract price

That's me in Florida.  I don't know what the rest of the nation is doing :)

Priscilla Z., I Sell Houses 321 | 321‑345‑7747 | http://www.isellhouses321.com

Priscilla,

Thank you for responding.  That really helps.  Do you have a general percentage that you stick to when making an offer to a seller?  How do you determine your wholesale fee?  

I guess I am trying to figure out how should I establish my wholesale fee when factoring in the offer to a seller.

Thanks again!

Priscilla gave you the tried and true method. Shoot for $10k profit and be conservative with your ARV

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Originally posted by @Priscilla Z.:

When wholesaling I use 70% ARV minus repairs minus my wholesale fee = contract price

Just wondering, are repairs and wholesaling fee the ONLY thing you subtract from 70% ARV? I've read many times that the investors TOTAL investment after ALL expenses should be no more than 70% ARV. With that being said, why would you not account for holding costs (taxes, insurance), closing costs (buying and selling), etc...from what I've read on here what you want to do is make the investors TOTAL expenses 70% ARV, not just get it to them at 70% ARV because of additional expenses. For example:

Contract = 30k

Assignment = 40k

Repairs = 30k

ARV = 100k

40k + 30k = 70k

70k = 70% of ARV (100k)

Now say the investor spent 15k total on expenses that you did not account for. 

Again, from what I've read the investor wants to make 30% ARV profit. In this case, 30k profit. But by you not accounting for that 15k in additional expenses, he will only make 15% ARV profit.

The way you see it

100k - 40k - 30k = 30k profit 

The way I see it

100k - 40k - 30k - 15k = 15k

Now that 15k is a huge difference. By not accounting for those additional expenses the investors profit was cut by 50%. To me that seems like a big difference. I've had an investor tell me just the other day "if there's not atleast a 20k profit, I don't want it". 

So me not accounting for an additional few thousand would throw it off. If my calculation using your formula tells me he will make 21k profit, and off the back spends an additional 3k closing that I did not account for, his profit has already dropped to 18k. 

Maybe 15k was a little high to use in the example, but regardless if he is looking for 30% ARV return, and there ARE additional expenses after the 70% he's already spent, that 30% has now been decreased.

I guess my question is, do you want to assign the contract for 70% ARV, or make the investors total investment 70% ARV?

Very sorry for the length but I've been having that on my mind for a while...

@Russell Ponce Hit on a very good point. Be very conservative with you ARV. If it doesn't fit your criteria then just move on.

If you get into a situation where you're trying to justify a deal or "make the numbers work" then it's simply not a deal.  Move on, there will be others.

Medium rzt hc 6483Michael Noto, SalCal Real Estate Connections | [email protected] | 860‑384‑7570 | https://www.zillow.com/profile/Mike-Noto/

I tend to look at a wholesale deal through the eyes of a hard money lender.    I use this formula which safe guards me so that I can profit.

"I underestimate value by about 5 to 10% and over estimate fix up cost by 5 to 10%".    

This allows me to move the deal rather quickly if I have a serious buyer in the area I am focusing on.

Medium bannerfans 19631991  1 Gerald Harris, Vacant Land 54 | [email protected] | 704‑996‑6472 | http://land54.com

@Damon Armstrong The 70% makes room for expenses AND profit. If the investor needs 30% profit the 70% formula wont work for him/her. If the investor needs at least a certain profit then plug that number in, ex: ARV - $20k - expenses - repairs = MAO. Compare that number to 70% rule and use the lower max offer.

@Haider Zaman  I stick to the formula.  Wholesale fee, like @Russell Ponce  

 said, I usually stick to 10K.  There have been times where you have to go lower and other times you get to go higher.  You will know the more you do.

@Damon Armstrong  Don't overthink things. I'm also a rehabber so I know this formula works. Yes, we go over estimated expenses all the time when rehabbing a house, it's the name of the game, but sometimes we can sell it for more too. Now, if you use the 70% formula and ALL of your buyers come in and tell you that you are underestimating repairs and no one is interested, then go back and renegotiate on the price, or come down on your wholesale fee.

It really is as simple as it sounds.  Find a deal that fits the formula, pitch it to your buyers, sell it.  Know your numbers, that's what it's all about.

Priscilla Z., I Sell Houses 321 | 321‑345‑7747 | http://www.isellhouses321.com

@Priscilla [email protected] [email protected] Harris Have all given good advice to your question here but I would like to add 2 quick things.

First, as far as what ARV should be for a rehabber 70% of ARV - minus repairs- minus wholesale fee is a good standard rule but it can and should vary based on a few other variables as you become more experienced. The condition of the property/amount of repairs can enter into the equation for some rehabbbers as well. For example a 100k ARV house that needs 20k in repairs is a whole lot different than a 225k ARV house that needs 100k in repairs and needs to be stripped to the studs and needs absolutely everything. Some rehabbers would expect to make more on a house with a tremendous amount of repairs because of the time and headache involved. But the most important variable that can effect % of ARV is area. Again 70% works for many areas but if you are in a bad area (Probably not war zone because it is very tough to retail there) but not a great area you might go down to mid to upper 60's % (65%-69%). If you have a house in a really good area of town you will need to upwardly adjust ARV and it can go up to 80% of ARV. Have you ever noticed areas where you see prices that investors pay up for and you think you could never pay that much for it on a regular basis? In Richmond the Fan area is like this. Even for rental houses they pay above what should be a retail price there.

Secondly, as far as your wholesale fee goes it should be based on a what you can make and still sell it with enough meat on the bone for the rehabber based on the numbers above. I am not a fan of saying a wholesale fee should be 5k, or 10k. It is very deal specific. This gives you an incentive to buy the cheaper (More marketing, more effort, negotiating, etc). The better you are at that and finding buyers the more you will make wholesaling.

804‑537‑0499

I know here in ALABAMA I use the 70% minus repairs then minus my fee. Negotiate under that amount. I always start at least 3000 under to give the owner negotiating room and let them feel like they are getting a fair deal. Good luck..

Originally posted by @Priscilla Z. :

When wholesaling I use 70% ARV minus repairs minus my wholesale fee = contract price

That's me in Florida.  I don't know what the rest of the nation is doing :)

i'm in florida myself is there any way we can talk i'm having a bit confusion about the ARV.i know how to do everything else marketing and finding buyers following up etc.if you can message me that will be great!thanks alot man.

A general rule of thumb is to think about all parties involved, especially the end buyer. It's tough since you cannot run a "typical" formula for each situation because some buyers are able to get portions of work finished cheaper or do it themselves....Here are some sample numbers for your average buyer (profiting what they have into repairs):

After repair value = $100,000

Minus repairs - $10,000

Minus fees, closing costs -$5000

Minus your fee - $10,000

Minus rehabbers profit - $10000

Maximum Allowable Offer = 65k