I have yet to make my first deal and before i do how do i know if a deal is good? Is it possible for anyone to break it down mathematically? An example of the ARV and the sale price and how much you would make out of the deal?
I can tell you what the most commonly accepted formula is. ARV * 70% - repairs - your fee = offer
In case you’re not familiar with the terms,
ARV (After Repair Value) is how much the house could potentially be worth after it’s fixed up. You multiply that by 70 percent (ARV x .7) to get a value investors are happy with. After buying and fixing a house, at the investor will be “in” the deal for 70% of it’s value, and will sell it for close to 100% of the value, that’s where fix and flip guys make their money, on that 30%.
Repairs are obvious, but the hardest thing to calculate, it just takes time and experience, there are alot of different ways to guesstimate the repair cost, just look around you’ll find some. An example is Sean Terrys: Square Feet x $15, but there are others.
Your fee is just that, how much you want to make, say $5,000 for easy math.
So on a house that you, or your realtor, or your comps program tells you is worth $100,000, you find 70% of that, so $70,000. Minus the repair estimate, say $18,000 for a 1,200 sq ft house (1,200 x $15). Now you’re at $52,000, then subtract your fee of $5,000, and you’d offer the seller $47,000. Then you’d try to sell it for the $52,000 value you calculated earlier. You keep the difference between $47,000 and $52,000.
Hope that helps with out overly complicating things.
Yes, that helped a lot thank you!
Also as far as a deposit and the escrow account, am i fully responsible for a deposit before i find a buyer (or how does that happen)? and what goes into the escrow account. I was lots when learning about this.
Good advice above! I wanted to add - many new investors (I was one of these) don’t realize the benefits of owner financing a property.
My mentor has made millions by owner financing affordable homes in San Antonio TX. He buys a house for $50,000, pretty rough, and owner finances it at 10% to a carefully qualfied buyer. Investor benefits -
- 15%+ cap rate
- no repairs by investor
- tax / ins are your only expenses (house is in your name)
It works great. No worries about repairs and all of those costs. I love getting $800 per month per house with no worries about maintenance! Good luck.
Great advice! Basically, you need to have a background check or a research in order for you to know if the deal is good.
I try to get these houses in bad condition for 30-50% of FMV. Then u shud have a good wholesale deal.
But even then sometimes I cant sell them, they may be in a rural area, or have liens or multiple owners or in such bad condition nobody in their right mind wud want them. But, most of the time they sell fast.