Wholesaling question?

Question

I need help with this deal.
ARV 219,000
(.65*219,000)-10,000[repairs]-21,900[holding]-10,000[wholesale fee] = $100,450 MAO

Now the seller currently owes $157,000 on the property.  Would it be an insult for me to offer the seller $100,450 knowing that they owe more than my offer.  Should I at least offer what the seller owes on it, or should I not even worry about what the seller owes and just make offers based upon my numbers?  I wanted to get an opinion from an experienced wholesaler on how you generally make offers.  Any help will be appreciated.

Chevis Duncan · Answer

thanks jon and nationwide, the numbers make sens, i didnt catch it before when reading...jumped ahead of myself....paul, my opinion, though not worth much, offer it, all they can do is say no.  i have a deal in the making right now where the owner is bringing48% to the table out of their pocket to get out of the house.  if this goes through,  and it looks good, it will be my biggest money maker to date!  good luck!

Paul Huntley · Answer

I need help with this deal.
            ARV 219,000
            (.65*219,000)-10,000[repairs]-21,900[holding]-10,000[wholesale fee] = $100,450 MAO
            
            Now the seller currently owes $157,000 on the property. Would it be an insult for me to offer the seller $100,450 knowing that they owe more than my offer.

So should I always take what the seller owes on their property into consideration when making my offers? Does a deal ever make sense if my MAO is less than what the seller owes on it (without having to do a short sale)?  Would this be a situation where I would ask for seller financing?  Basically, is this a good wholesale deal, or is it a dud?

Will Barnard · Answer

Of course if you can get an offer of 65% less repairs AND less holding costs, more power/profit to ya!

Jon Holdman · Answer

Will's exactly right.  Another reason is that it's likely your buyers will use 70% of AVR or 65% of ARV as their threshold.  As long as price plus repairs are below their threshold, they will buy.

For a flip, if purchase plus rehab is 70%, and you're using hard money, and you can turn the property in six months, you'll make 10-15% of ARV as your profit.  All these other costs, including the holding costs, and in the other 15-20%.

Will Barnard · Answer

Chevis, the reason for the max offer of 65% is because holding costs are already factored into that figure. Or you could offer 70% less holding costs as another example.

Will Barnard · Answer

I think Jon hit the numbers more accurately so I would use that as your MAO. In doing so, you need to get both the seller and the bank on board with a short sale.

Chevis Duncan · Answer

guys, why would you not put in your holding cost in the formula?  i understand it shouldnt be an expense with a good buyers list, but just in case it was, i would want it covered in my offer, so its not out of pocket or into my profit.  please explain your thinking.

Jon Holdman · Answer

I think you're miscalculating your MAO.  You wouldn't normally include the holding costs.  If your buyer's criter is 65% of ARV, then:

65% of $219K = $142.
Less repairs of $10K is $132K
Less your fee of $10K is $122K.

Still below what the owner owes, so you would have to do a short sale to make this work.

Jim Doine · Answer

Paul, Generally the only time an owner might take less than what is owed would be a short sale situation. I'm also curious why you are figuring such a large amount for holding costs. You should have a buyers list ready before you put a property under contract, and you quickly assign the contract to one of them. There should be no holding costs to you.  Jim

James Hiddle · Answer

No homeowner is going to sell you a home less on what they owe. Plus that would leave no equity and put the home upside down.