I recently listened to 2 different podcasts and heard 2 different investors talk about equity when purchasing homes to wholesale. Can anyone explain why equity is or is not an important factor in determining whether you should purchase a property or not when doing wholesaling.
Without equity, you can't flip and make money. Without equity in a buy and hold, you likely are overpaying and this, won't have cash flow, hence, no matter what the strategy, without equity, you typically don't have a deal. There are some exceptions to this but no need to go off topic here. From a wholesaling standpoint, you need equity to create a spread for your buyer and your fee, nothing more complicated than that!
can a cash buyer still buy a property if it doesnt have much equity and both you the wholesaler and your buyer still make a decent profit?
@Clifton Walker first we need to determine what "much equity" and "decent profit" is from your post above. If you stick to the formula:
ARV x 70% - repairs - your fee = your offer
So say you have a property with a $100,000 ARV and the seller owes the bank $87,000.
With the seller only having $13,000 in equity, there is no way they can let this property go for any less than what they owe. This is the spread that @Will Barnard mentioned. This is what you and the buyer will be splitting. In this example I gave, I would walk away.
Now let's say the scenario were a bit different and the seller owed $30,000. Now you have a little more wiggle room between what the seller owes and the ARV. Not to say the seller will always let the property go for that amount but that's a good starting point if they're motivated enough.
Hopefully this helps.
hey that really helps alot. thanks a lot guys!!
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