Wholesaling For Newbies: The Correct Math Equation

8 Replies

Hi BP,

I am torn between two wholesale equations. The first being

70% ARV -Repairs- My Profit= Maximum Allowable Offer

OR

ARV – Rehab – B/S/H – Your Profit – Investor Buyer Profit=Maximum Allowable Offer (MAO)

After Repaired ValueMinus

Rehab Costs Minus

Buy/Sell/Hold Costs Minus

Profit EqualsMaximum Allowable Offer

Advice is well appreciated.

@Cody Evans in the second equation make sure to include the flipper’s profit and your profit in the profit bucket if this is a wholesale deal. 

I like to work both ways to see if my numbers make sensse or are similar. If they are way different I go back to check and make sure I didn’t miss something along the way. 

Some flippers want a minimum of $20k, some want a % of Arv depends on your market of course.

@Cody Evans, Great Post

I use this formula when evaluating investment property.

Maximum purchase price = Sales price - fixed cost - profit - rehab cost.

In order to determine a property's sales price you want to: 1. Pull comps from the mls, (when pulling comps look for: time of sale, location/proximity, age and style, size, condition) 2. Adjusting your comps to add in special features 3. Determine the value of the subject property. 

3 types of fixed cost you want to keep in mind: 1. Purchase costs - Inspection, closing, and lending fees 2. Holding costs - mortgage payments, property taxes, utilities, insurance 3. Selling costs - commissions, closing costs, home warranty, termite letter, listing fees.

Hopefully it helps you out.

Having an equation makes sense — and @Jack Douglas ' is spot on here. Having a quick equation is the best way to sort out your good leads and your bad ones. 

But if you're wholesaling to another investor, it really depends on their numbers, not yours. And here's the thing: everyone's going to come at you with different numbers. A landlord buyer and a rehabber are going to have completely different requirements for what they're buying. Every factor from closing costs, labor, material, minimum profit standards are going to differ. 

So there is no true and exact math equation unless you plan on taking down the property yourself. What matters the most is negotiating a good deal so that you have plenty of buyers that can work with your property. 

Thank you guys

@Ken Yu

Any books or resources you recommend for negotiations?

Enjoyed reading your Post @Ken Yu ,

I agree with your statement:

"So there is no true and exact math equation unless you plan on taking down the property yourself. What matters the most is negotiating a good deal so that you have plenty of buyers that can work with your property."

If your sole intention is to wholesale a deal when meeting with a motivated seller and not taking down deal yourself. Focus on putting the home under contract for as low as possible and with enough equity in the deal so that when you assign the contract to another party there able to make good profit as well. 

You want a win-win situation for everyone so you're motivated cash buyers keep coming back for your deals!!!!

@Cody Evans

Read "The Book on Negotiating Real Estate," written by J. Scott, Mark Ferguson & Carol Scott. The best and only book on negotiating real estate that I ever read and has a ton of great useful information that you can use in the field.

@Cody Evans

The only real book I've read on negotiations is Never Split the Difference by Christopher Voss. Awesome read, a bit extreme for wholesaling, but his outlook on why people make decisions gave me plenty of 'aha!' moments. This is all about appealing to emotions and helping people with their problems. 

But best way to get more comfortable is with practice. Make a hundred calls, have 99 fail miserably, but I guarantee you'll be left with one slam dunk lead and the experience to keep it going!

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