Cincinnati, OH · Member since 2016 · 5 posts · 1 vote
Hey BP
I had a motivated Seller contact me recently in response to an ad I posted on Craigslist and she is very motivated but she owes 50k on the property and the median sales price for homes recently sold in that area is only around 66k. Now I'm fairly new to wholesaling so I'm not exactly sure how to go about this process involving homes with mortgages but it doesn't seem like it would be a good deal. Any advice or suggestions?
Wholesaler · Mishawaka, IN · Member since 2013 · 438 posts · 346 votes
10y
@Darrell Phillips That would not be a good wholesale deal. You can wholesale a house with a mortgage, and most of them will have a mortgage. Your numbers need to be pretty accurate to be successful. Here is the formula to use when considering a deal:
First you need to figure out the ARV(after repaired value) which is what the house will be worth when it's fixed up. You figure out the ARV by getting comps(properties recently sold in close proximity to the property you are considering, with similar features - Bedrooms/batrooms/square feet/etc. and sold within the last 30-180 days). Use a realtor to pull comps for you unless you have access to the MLS system. You can also pay for comps by using Real Quest.
Then, you subtract from the ARV 35% right off the top. You do that because that 35% includes the cash buyer's profit on rehabbing it along with holding costs and other things. That is the norm and what a cash buyer will expect from a wholesale deal.
Next you deduct the cost of the repairs that need to be done to the property. If you don't know what the repairs will be or how to figure them, get a couple of contractors to come walk through the property with you and give you estimates until you learn how to figure the repair amount for yourself.
So the formula to use is this:
ARV-35%-repairs= Your selling price
(This will tell you how much to sell the property for to a cash buy/rehabber)
ARV-35%-repairs-your profit= You maximum purchase price
(This will tell you how much to buy the property for. Also, never offer the maximum amount on your first offer. If your maximum offer is $50,000, I usually offer 15% less. So you would offer $42,500. That will give you wiggle room in case they counter your offer.
Cincinnati, OH · Member since 2016 · 5 posts · 1 vote
10y
Thanks that's some great info I will implement moving forward. As far as getting comps from realtors, how would I go about doing that and does it cost?
Investor · Kent, WA · Member since 2015 · 624 posts · 274 votes
10y
Build relationships with a handful of realtors and they will gladly run you comps for free. And of course, use said realtors when you are ready to buy/sell. Could also be a candidate for a short sale.