What is formula for coming up with percentage of ARV

8 Replies

What is the formula for percentage rate of ARV. I've heard the standard is 70%. But then I hear that rate may have to be adjusted. And please give example. Thanks

Hello,

Generally, the formula to determine the maximum price you'll pay as a wholesaler is:

ARV x .7 - cost of repairs - expected profit = max offer price.

Example:

You know the neighborhood and pull comps to determine a house, in perfect move-in condition, is worth $100,000 but after walking through the property you determine it needs $15,000 worth of repairs to bring it to that move-in ready condition. For your effort, you expect to be paid $5,000.

$100,000 x .7 = $70,000 - $15,000 in required repairs = $55,000 - $5,000 profit = $50,000 maximum offer price.

From there you adjust as you see fit.  If you can add some profit you offer $44,000 initially then sell it to a rehabber or landlord or whoever for $55,000.

He in turn uses cash or a hard money loan to fix and flip the house. Hard money lenders will only lend at 65 or 70% of ARV as I understand so in order for your end buyer to fund the deal, he needs to acquire it at 70% of ARV or better or he won't be able to get the financing he needs. This applies to a typical wholesale deal.

Originally posted by @Phil B.:

ARV x .7 - cost of repairs - expected profit = max offer price.

I suppose you can use any formula you want but I'm pretty sure 'ARV x .7 - cost of repairs' is more generally accepted. The 'expected profit' is built into the 30% equity after repairs are completed.

@Deborah Hill  The 70% is a good rule of thumb and if you can lock down deals with that investor discount that's great. But it might need to be adjusted depending on the area or part of the country. For instance, here in Phx it is very competitive. Buyers will generally accept 75% less repairs.. and it is rare to find one at 70% because of the competition! It would be safe to start at 70% and see how it goes.. if you can get any deals. Likewise, it would be good to ask the fix n flip investors in your specific area what their buy criteria is.. 

@Phil B.  

Generally, the formula to determine the maximum price you'll pay as a wholesaler is:

ARV x .7 - cost of repairs - expected profit = max offer price.

My question is how do you lock in the profit in $$. I generally use % to express the profit and Account Closed said the profit is build into 30% equity of the property. I would be skeptical of expressing profits in $$. I could make more or less but I know I cannot make less than 20% COCR which is generally my thumb of rule

Hi Nilesh,

Im not quite sure what you are asking but your profit is going to be the difference between what you contracted with the original sell, say, $50,000 in my example, and the end buyer/flipper/landlord, say, $55,000.  The 5 grand difference goes in my pocket via assignment fee.

Originally posted by @Phil B. :

Hi Nilesh,

Im not quite sure what you are asking but your profit is going to be the difference between what you contracted with the original sell, say, $50,000 in my example, and the end buyer/flipper/landlord, say, $55,000.  The 5 grand difference goes in my pocket via assignment fee.

once you have developed a strategy that works for you to whole sale a property can you make a living off of it?like 3 or 4 properties a month?is it possible?i'm in miami fl.just having a little difficulty with coming up wit the ARV.so far i have mastered how to find cash buyers and COMPS

Originally posted by @Phil B. :

Hello,

Generally, the formula to determine the maximum price you'll pay as a wholesaler is:

ARV x .7 - cost of repairs - expected profit = max offer price.

Example:

You know the neighborhood and pull comps to determine a house, in perfect move-in condition, is worth $100,000 but after walking through the property you determine it needs $15,000 worth of repairs to bring it to that move-in ready condition. For your effort, you expect to be paid $5,000.

$100,000 x .7 = $70,000 - $15,000 in required repairs = $55,000 - $5,000 profit = $50,000 maximum offer price.

From there you adjust as you see fit.  If you can add some profit you offer $44,000 initially then sell it to a rehabber or landlord or whoever for $55,000.

He in turn uses cash or a hard money loan to fix and flip the house. Hard money lenders will only lend at 65 or 70% of ARV as I understand so in order for your end buyer to fund the deal, he needs to acquire it at 70% of ARV or better or he won't be able to get the financing he needs. This applies to a typical wholesale deal.

 so far my only challenge that im facing to figure out is finding the accurate repair cost after multiplying property price by .7 suggestions?i already have my buyers list now setting up my sellers list!

Deborah,

So you have the formulas. Now how are you finding deals. Camping out on the MLS....Or ?