Wholesaling: Roughly How Much Equity Needed?

Question

Hi everyone,

First off thank you so much for all the helpful answers I've received recently, I'm getting closer and closer to getting a decent understanding.

Anyway, enough of that mushy gushy stuff! I live in northern California where the houses are expensive and prices have a big range (300-600k for the ARV). I want to gain the ability to determine for my market the amount of equity I should have in a house in order to get it under contract. Someone recommended targeting houses with equity%>60% but after I get a house I'm interested in pulling the trigger on I'd like to be able to determine with more accuracy than just a generalization.

I figure Ill just use my wholesale formula to determine the equity needed but that is different for each buyer (flippers). Can I get a guideline for determining the equity needed for a house based on its ARV?

Account Closed · Answer

@Cody Evans I target houses that have at least 50% equity. I think thats what you were referring to?

Matt K. · Answer

Not a wholesaler, but... I think you're looking at the wrong side of the coin. You want to buy the house for x% of ARV so you can make a profit and sale at y% to a investor. This seems to be more efficient than trying to figure out loan balances... either they accept/decline the offer. In terms of negations you want a range from A(lowest price) to B(highest price).So for example:House worth 300K lowest they'd realistically take is 150K, highest you can do (and still make profit) 200k. So toss offer of 150k, they come back and say we owe 180 but want 200 you now know you're new range is really only 180-200. Then you fine tune your numbers and settle somewhere between the too.

Will Barnard · Answer

This is an old post where it appears the original participants have yet to respond recently.

Equity has less importance than the % to ARV you need to offer at to have a deal. If a seller owes $500k on a home worth $500k, then they have zero equity and when taking into consideration sale costs, negative equity. This does not mean the deal could not technically be wholesaled but it does mean that seller would either need to bring cash to the table to close or get the lender to approve a short sale. In the event of a short sale situation, it can still be wholesaled but not via an assignment of contract as banks do not allow assignments on short sales or REO deals.

@Skilak MissionTitle companies can pull loan info to see what was originally borrowed, at what percentage, and then you would need to do some math to calculate the loan balance at that time. There are no websites or means to know what every property loan balance is. You would need to get an authorization to release information signed by the homeowner to have the bank release said info to a third party or be in escrow for purchase and the title company could do that on your behalf.

Cody Evans · Answer

Making more sense and I think I am making it way too complicated. I know the math formula but this market is hard to find info on since it seems so different: You are saying 70-80% ARV and I am assuming this obviously means minus the repair costs right? I just want to make fairly sure I don't get a bad rep with my first deal even though mistakes will be made.

Aaron K. · Answer

@Cody Evans To clarify I'm saying investors will purchase from you at a price that is 70-80% of ARV.  If you can find someone willing to sell at 50% or even 60% ARV in the Bay Area you will probably have investors lined up out the door.  You will not find properties at 50-60% ARV on MLS you will most likely have to do direct mail or some other form of marketing to even come close to that.

Aaron K. · Answer

I would say you could probably get it sold at 80% with some work to find a buyer, 70% should fly off the shelves unless it is a tear down in that area

Enrique Elizondo · Answer

Account Closed are you still doing wholesaling?

Skilak Mission · Answer

Dr. Chii of San Antonio Texas,

what website will enable me determine the loan balance including liens on a house that am trying to make an offer on?

Nicholas Lawson · Answer

@Cody Evans great post. More than a year later, can you please comment on the methods you tried? What has and has not been successful for you? Thanks!

Cody Evans · Answer

Thank you all. I see it is mostly case by case. There has to be enough equity for my buyer to make a profit and my seller to not owe money after closing.

Are any wholesalers getting deals here in California? What methods do you use?

Wholesaling: Roughly How Much Equity Needed?

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