Hey everyone I’m a total newbie to wholesaling and was wondering why I don’t have to worry about repair estimates on a property? Is that something the end buyer deducts from his costs when he buys the house? Little confused.
When you wholesale a property, you need to figure out what would make it a deal for your rehabber/buyer. (Yes, if the buyer is a landlord, that likely changes the numbers a bit.)
The typical formula is that the buyer doesn't want to spend more than 70% of the ARV (After Repair Value) minus the repair costs. So, if the ARV is $100,000, and the estimated repair costs are $15,000, then they don't want to spend more than $55,000 on the property. This makes your fee the difference between that and what you get it under contract for.
So while you're not paying for the repairs, you want to be able to estimate them, and as such, you do have to understand them. Now there are several mindsets when it comes to repairs. Some people say just to get it under contract for as low as possible and go from there. Some people will say use an average repair estimate. Some will use a formula based on square footage and the level of repairs needed. And finally, some will say you need to be able to walk through the property and do a good estimate taking everything into consideration (cost of kitchen, bathrooms, tiling, windows, roof, ...) Whatever model you use is up to you.
But as for the seller. They're paying what you're charging them plus all repair and holding costs, then hopefully making a killing on the final sale.
Thanks for the feedback!