Wholesale practice scenario

[Fredy F.]

Hey guys I wanted to share an example with everyone if its a "good deal" to wholesale to rehabbers.

3 bedroom 2.5 bath 1800 sq. ft 8800 sqft lot
Current Value: $200,000
LTV: about 72%
Homeowners owe about $80,000 on mortgage

Am I correct to say that this is a good deal for me (wholesaler) and a potential buyer?
If my math is correct, If I negotiate a deal with distressed homeowner for $83,000 ($3,000 moving expenses+$80,000 to pay off their mortgage), put it under a contract now? or should I calculate how much repairs will cost? ok... let's say $15,000 in repairs needed.. Is selling the home to a rehabber for ($98,000 ($83,000+$15,000 in repairs) + my assignment fee of $15,000=) $113,000 a good deal for "everyone"?

FYI 70% of the current value ($200,000) is $140,000, would it be smarter to wholesale it for more and get higher assignment fee? $140,000-$113,000=$27,000 leftover. thanks all

[J Scott]

It's true that many rehabbers will use this formula:

Max Purchase Price = 70% of ARV - Rehab Costs

So, if the ARV is truly $200K (you'll want to verify this) and the Rehab Costs are truly $15K (you'll want to verify this), then a typical rehabbers would likely pay:

Max Purchase Price = 70% of $200K - $15K = $125K

Now that you know a rehabber will likely pay $125K, you need to subtract out your fee on the deal. If you'd be happy making $10K on the deal, subtract that from the $125K, and you get $115K. That's what you'd need to buy the property for in order to be able to resell it to a typical rehabber for $125K and get your $10K fee.

If you can buy it for $115K, it's a good deal for you. If you can get it for less, it's an even better deal for you (and/or your end-buyer).

Now, whether the sellers will take $115K for the property, that's the big question. If it's a pre-foreclosure, they may not have the time/energy to find a better offer, and if the property needs a decent amount of rehab to become livable, they probably can't sell to a financed buyer. So, they may happily sell it to you in return for walking with $35K instead of going to foreclosure.

That's the hard part of the wholesaling business...convincing the sellers to take your offer...