My partner and I recently got a call from a highly motivated seller. They will soon be meeting with the seller to walk through the house and will begin negotiations if things look good. I thought I’d show you the numbers on this deal so you can see how I evaluate a wholesale opportunity.
First, let’s start with the seller. He’s motivated because he can’t afford his payments anymore and he’s facing foreclosure. Remember, the name of the real estate game is “motivation,” because if a person isn’t motivated, they’ll never be worth your time; unmotivated sellers will drive you insane in this business (if you allow them to.)
The seller says the house is in great shape, but of course they all do. The few repairs he mentioned we’ve estimated on the high end at about $10,000. Of course, I’m sure after my partner sees the place that will easily double so we might as well call it $20,000 in repairs.
Comps in the area for the house are about $315,000. The seller only owes $53,000. Now, if the seller just wanted us to pay off what he owed this would be a home run, but this is not the case. He has several other bills and needs $16,000 to pay expenses and then wants $25,000 in walking money.
So when you add it all up he wants $94,000.
Since the comps are $315,000 you can see that there’s still a good amount of equity. But let’s break down the numbers even more from a wholesaler’s perspective. If I can get this property at .50 cents on the dollar that’s $157,500. Of course, I also need to subtract repairs which I’m going to go with a high $20,000 estimate. That brings us down to $137,500.
In other words, I believe that I will have no problem at all wholesaling this property for $137,000, which would be a great deal for a rehabber. So, if I can get it for $94,000 or even $104,000 it will make us a good amount of money.
Keep in mind that I’m being very conservative with all these numbers too. The repairs might be only $5,000 and I can probably wholesale this property for .60 cents on the dollar. But, in today’s economy it’s always better to be conservative.
I’ll keep you posted on what happens with this deal and hopefully by the end of the week my partner and I will have a signed contract and a buyer locked in.
Photo: Horia Varlan