Best way of figuring your calculations?

Question

I have seen a couple. Ive even seen one where you calculate in a buyer's holding costs. Whats the best way of calculating your offer on a home you intend to wholesale?

Peter Giardini · Answer

Troy... one way that I teach my clients is the 70% rule... only I recommend they use 60%.

Let me explain...

Somewhere along the line a guru, I don't know who, was teaching that the best way to determine your offer price was to take 70% of the After Repair Value (for a disucssion of determining ARV I posted a blog last Sunday related to the subject) and the subtract the repair estimate from that 70% and that would be your offer price.  For a wholesaler, you just have to add in your wholesale fee on top of the repair estimate.

Lets look how that works using real numbers and 60% instead of 70% because the market is still shaky.

For discuss sake ;lets say that the ARV was $100K... 60% X  $100K equals $60K.

If your repair costs are $15K you would subtract them from the $60K to arrive at an offer price of $45K.

Now you subtract your wholesale from the $45K to arrive at your offer price.

I hope this was helpful?

Peter Giardini · Answer

Great question...

What I didn't explain is that the 40% that was taken off the top of your ARV represented the following...

Costing costs in both directions
Holding costs 
Soft costs (insurance, utilities, etc.)
The investors PROFIT.

What I also didn't talk about is the approach if you are wholesaing a deal to a landlord.  The approach would be different.