Doing the numbers is this the proper formula to attract buyers?

Question

Hi Everyone,

I'm a newbie but I know when structuring a wholesale deal, sometimes the wrong numbers can kill the deal. This is my take on a proper attractive deal for end buyers. I need opinions from other experienced investors, is this formula correct?

Example:

Property Value: 260k
 $260,000 x .65 = $169,000 .. (65% of actual market value)
Repairs:                 -$15,000

And also I would have to subtract my assignment fee and also allow room for any closing cost or fees a end buyers has to pay at closing

My fee between 3k-5k (depends on different factors)

So with that said I would offer between 140k - 145k this would include my fee

The extra few thousands I would allow for my end buyer to keep again to compensate for any fees at closings

All opinions are welcomed here !!

I'm sure many are going to bash me and say this is the reason wholesalers arent successful because they dont know their numbers. But thats why i'm here to ask first before I waste anyones time.

Thanks in advance

Brent Zande · Answer

This would have been a very attractive deal had you been able to put it together.  I would suggest spending the money for a desk appraisal for the after repairs value and getting 2 contractor quotes.  You are asking the rehabber to pay you for the deal, make it easy for that person to fully trust that its a deal and do that work yourself.  It makes our lives easier and does get us writing checks.  Good luck

Rachelle E. · Answer

@ Brian thanks for your reply I will be sure to clarify that with investors in the future. Sorry for the mix up

Brian P. · Answer

Your initial post stated actual market value which would make this a really great deal. Later you state you pull comps. Are you pulling comps to determine the future value after repairs or ARV after repair value, or to determine what it is currently worth in it's present condition or it's FMV fair market value now. I think it is easy to see which you intended but it wouldn't hurt to use the right term if you were talking to me, I would have to have you stop and clearify it.

Rachelle E. · Answer

@ Brent and Stinson thanks again for the great advice !!!

Rachelle E. · Answer

@ Stinson Very True. Again it was just an example not true actual numbers on the repairs. My point was just to see if i'm running the correct formula if that was the true and accurate repair amount. Thanks

Stinson Bland · Answer

Based on your example:  I'd say you're very low on your repairs estimates.

I'd suggest you start talking to contractors to get an idea of cost in your area.  A few walk thrus at HomeDepot with a note pad will be very good education aswell.

Rachelle E. · Answer

Thanks for the responses

@ Brent the 260k would be actual comps pulled for that area. This was just an example of a deal. Almost had a deal like this before. Repairs are a rough estimate from the house needing window replacement fairly big 2 story home with old single pane windows, needs new carpet, rotten boards around windows. Entire house needs to be painted Needs Central Air and Heat Installed etc. Basically the homeowner never repaired anything, but its not a complete rehab nightmare or anything. I agree with the minimum fee of $7,500 I just didnt want to start off in this business as someone who tries to be greedy and make the most on one deal. I want to have buyers come back for more business and I thought that if I were to have a large assignment fee that it may scare buyers away. Now I dont feel so bad with wanting to make more $$$$ :)

@ Stinson the house was a 4 potential 5 bedroom home, 2 story. 2 fullbaths 1 half bath. Partially Completed basement. This was a just an example of a deal I almost had in my hands. Just wanted to see if my approach with the numbers are correct or if I needed to adjust a little

Thanks Again

Stinson Bland · Answer

What is the size and condition of your property? It is very easy to spend $15K on a small/cheap rehab.

Brent Zande · Answer

Actually, the 35% you are plugging in is a very strong number.  Of course its area specific, but looks strong to me. There is a fine balance here, that if you are too aggressive you will never get a seller hooked and if you aren't aggressive enough there isn't much for the rehabber to get excited about.  I am happy to make 20% after all expenses are paid.  the biggest thing for me to buy from you is prove your numbers-is the $260,000 a appraisal or just a BPO.  Is the repairs number a quote from a contractor or 2 or just a guess.  Once proved out this looks like a good deal.  Plus, I think only 3-5k for getting this good of a deal is too low.  $7500 minimum.

Doing the numbers is this the proper formula to attract buyers?

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