Deal Analysis II

 Wholesaling formulas that could make you...

Real Estate Investing Formulas: Wholesaling

Every professional real estate investor has some type of formula that they use to determine the profitability of a deal. Depending on what type of investment  and or exit strategy that they have will determine what their  formula will look like. Often times investors tweak  formulas to fit their specific needs. As you begin to invest, you will also create and adjust your own formulas to help you decide the validity of your deals.

Here is a simple formula to get you started as a wholesaler:

ARV x 35% - Repairs -Profit = MAO

After Repair Value

ARV is the likely appraised value of  a property once the necessary repairs have been completed. You can typically develop this number by looking at the comps of  properties that have recently sold in the area your property is in. It is very important to keep this number conservative.  Remember, the idea is to sell the property as quickly as possible. Do not inflate your ARV. This was a huge folly that many speculative investors made during the real estate boom. When the real estate market collapsed  these investors were forced to sell their properties at huge loses because they paid too much for their investment properties. Don't make this mistake,  there will  be other deals.

The percentage multiplier refers to the amount of profit that you are leaving on the table for the retail investor that you plan to sell to. Remember, as a wholesaler your mission is to sell a property t0 another investor as quickly as possible. To learn more about wholesaling checking out our blog post on wholesaling http://www.aubenrealty.com/blog/index.php/86/lets-get-started/. In this example, the multiplier is 35%. This means that in this deal you plan on leaving 75% of the profit on the table for the other investor and you plan on collecting 35%. The multiplier can be changed to whatever percentage that you feel comfortable at as long as you ensure that you leave enough profit for the next investor. When you begin wholesaling, it is always best to keep you percentage conservative to account for unexpected obstacles.

Repairs

Repairs refers to the total amount of repair costs that it will take to make the property ready to sell or rent.

Profit

Profit is your desired profit goal

Maximum Allowable Offer

MAO is the maximum amount that you will offer to purchase a home. You want to keep your purchase price at or below the MAO. If you ever buy a home above your MAO, you never want to deviate to high above the number.

Ex: 100,000 x .50 = 50,000 ( 50,00- 5,000( repairs) = 45,000)  45,000-15,000 (profit)= 30,000 (MAO)

-Auben Realty Improving Augusta One Home At A Time