How To Buy Wholesale Properties & Not Take A Bath: Part 3

How To Buy Wholesale Properties & Not Take A Bath: Part 3

This series of articles will help you determine what to offer on any kind of wholesale property. The key to success as a real estate investor is to have a proper offering system in place. Our web-based offering software called What2offer makes this process easy and quick.

But let's get into it. Let's talk how to calculate the Maximum Offer Price:

Calculating The Maximum Offer Price Whether buying from a wholesaler or from the original owner-occupant seller, the price you can pay is the price that makes financial sense. The asking price is completely irrelevant. You must know the right price to pay before you start negotiating. The formula I use is: ARV – Repairs – Buy/Sell/Hold (B/S/H) Costs – Profit = Maximum Profitable Offer You already understand how the ARV is determined. Repairs are a little more difficult, because everyone has a different list in their head of what needs to be done, how elaborate the work needs to be (EX: tile vs. linoleum; carpet vs. hardwoods; Corian vs. laminate), and the cost of the contractors to do the work. Wholesalers attempt to determine a fair, middle of the road figure to advertise, but truly, it's meant to be a guide, not an absolute. You have to determine your own repair estimates after viewing the property. B/S/H costs consist of: • All the costs associated with the purchase of the property: title work, attorney's fees, title insurance, survey, loan origination fee, appraisal, etc. • Costs associated with the sale of the property: closing costs paid on behalf of the purchaser; realtor commissions or marketing costs, home warranties offered • And the costs to hold the property: debt service (mortgage payments), property taxes, hazard insurance, and utilities. Each renovator's costs will vary from about 12% up to about 21% of the final sales price. A good average to use is about 15% of the ARV. It could be higher or lower for you based on the cost of money, and how you plan to sell your house. But as a rough gauge, the 15% rule seems to work. Plugging in the profit is the fun part of the formula. How much do you want to make from this deal? Of course, we'd all like to make $100,000 on every deal, but we'd seldom, if ever, have an offer accepted if we always plugged in that number. I recommend that you plug in the minimum amount that you would accept and still be happy. If your offer is accepted, you'll be happy with the profit; and if the offer is not accepted you won't be upset that you missed the opportunity because you held out for too much profit. Keep in mind however, this is the maximum price that you should pay for the property. But there's still one more step…

We will cover this part in our 4th part of this series.

To Your Success, Tom & Svein What2Offerdotcom

Comments? Questions? Email Here

© HowtoAdvice.com