Updated over 15 years ago on . Most recent reply
equation???
I am curious. I have read about "How do you know if a deal is a good deal". My questions is is there a particular EQUATION that you use to ensure that you WILL make a profit of some sort.
I am not wanting to rent out a home as I am just getting started. But I am wanting to wholesale.
EXAMPLE: I found a property that is an REO and is estimated $15K worth of rehabbing. It is selling for $20K but when Rehabbed COULD be worth around $60K (which is what similar houses in the area sell for).
Any help with this would be great. I want to ensure that this MAY be a good one to start with. Thanks in advance.
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The answer to that depends more on what your buyer's criteria are for purchasing. You also have to factor in closing costs and your desired profit as well among other things. If you are selling to rehabbers the typical formula is 70% of ARV - rehab costs = max purchase. I happen to know buyers that will purchase on a much thinner margin than that and buyers that look for 60%. It all just depends.
In your example you want to use conservative numbers to estimate, not the best case. On your deal, you are talking about 35k purchase and repair (not including your fee) with a 60k ARV. That certainly leaves some room for you to make a few thousand on. If the value is much less than that, the deal starts to get thin pretty quickly.