A good wholesaler – Investors fighting over your deals.

Being a wholesale is a great start to your real estate adventure. In this article I will just concentrate on the NUMBERS that is involved with being a wholesaler. Some might think this is not that important but I will tell you this, if you don’t understand the NUMBERS then it will be very hard to succeed.

** This is not an EXACT SCIENCE but it is a process that you need to understand. **

As a wholesaler you want QUICK cash. For that to materialize you need to be good at knowing the numbers. The deal will speak for itself IF you do the numbers correctly. So what are the numbers?

• ARV – after repair value. You need to be aware of this.
• REPAIR COST – if you are not good at this, connect with a contractor and get an estimate of repairs.
• YOUR PURCHASE PRICE – This sets the tone. You make your money during the buy. BUY RIGHT.
• YOUR SELLING PRICE – you price this right to attract the investors. You want them fighting for your deal so this means you need to make sure all your numbers are good BEFORE you do your selling price.
• YOUR FEE – this is part of establishing your selling price. You must make money. This is also a negotiable item. Keep that in mind. You must be flexible here if it comes down to it.

Let’s walk this thru. Let’s go through the numbers. I hope to point out some areas to watch for so that you can make some pretty good money. Let’s assume you know your area and you know how to figure out the ARV. Let’s also assume you know how to figure out repair/rehab cost.

Let’s begin with these numbers:

• ARV of the property = $100,000
• Repairs/Rehab = $25K-$35K
• Purchase price = $20K

What should your fee be? What could you sell this for? Let’s do the numbers. To get your fee, Selling price to investor minus your property purchase price = Assignment fee. So…..

$100,000 (ARV) X .7 (70% rule) = $70,000 the minus $35,000 (high end of the rehab) = $35,000. With this example you could try to sell this for the max which is $35,000. If you do then you have a $15,000 wiggle room ($35,000 minus the purchase price of $20,000 = $15,000). You could potentially walk away with $15,000 based on these assumptions (we are not including closing costs for simplicity).

Here are some tips so that you can maximize your fee.

• 1.Use a CONSERVATIVE ARV. What this means is when you your COMPS, you will have LOW, MED and HIGH values. Use the slightly above MED number. As an example, if the HIGH is $121,000 and the MED is $95,000, you could use $100,000 to about 104,000.Why? You want to have conservative numbers. This is great for the investor and it shows you are being realistic that most sales will be in the middle of the range.
• 2.Use the high number when it comes to repairs. This is being CONSERVATIVE again. NEVER use the low number. That just spells for disaster. Most rehabs run more than estimated so you want to use the high number just to be conservative.
• 3.Your purchase price. This is always the best one to get right in the beginning. Before making an offer at least have a GENERAL idea of the two items above. Many have said this “You make your money during the BUY.” This is very true. Just think about it, if items 1 and 2 are good BUT you bought it incorrectly then your profit is much less.So start off correctly. BUY RIGHT.

If you employ the 3 tips I mentioned, investors will be fighting over your deals. Generally speaking MOST investors care only about their numbers. What you bought it for is truly irrelevant. It really isn’t anybody’s business what you bought the property for. What’s important is you are passing on a good profit margin to another investor since he/she is the one taking on the most risk.

With the example above, you have $15,000 to play with. You have lots of negotiating room. This is a great thing. BUT say you messed up with the buy. Instead of $20,000 you bought it at $30,000. Now you are down to $5,000 fee (assuming all is still good). There is no room here unless you decided you just want the deal done and would take less than $5,000 assignment fee.

I hope you can see that understanding the numbers is very important if you want to do well being a wholesaler. It is not an exact science however the formula above works IF you plug in good numbers. Do your homework, ask for help and input, be conservative with some of the numbers, you will do well. The investors will be fighting over your deals. Remember BUY RIGHT is the start.

I wish you the best. If you have any input to add to this please do give it. Be constructive.

Author is John Morey

Real Estate Investor In Athens AL (and in the HUNTSVILLE MSA)