As wholesalers, should we create a cushion from the ARV or FMV?
I want to give my investors 30% equity but 30% equity from what?
I’ve debated this and batted it back and forth. Shouldn’t i give them the ability to make their money when they buy? Thinking from the buying perspective, i’d want my 30% from the Fair Market Value in case i need to sell before making any improvements. Then I can sell for the FMV (or close to it) and still make a profit.
Is it just that it’s understood that when working with a wholesaler you may not get as good a deal as you would if you found the property yourself?
Thanks in advance for offering any amount of clarity on this.
Hope this helps…I use this formula
ARV*.7-repairs-my profit= top offer
ARV = 100k
Repairs = 20k
My profit/ assignment fee = 10k
The most I would offer on this property would be 40k
Offer to buy property for 40k assign to other investor for 10k the investor will pay 20k in repairs bringing the total invested to 70k leaving 30k profit for them. Thus being 30%
Islander, thank you so much! That really helped. That’s the formula i plan on using but this:
“Offer to buy property for 40k assign to other investor for 10k the investor will pay 20k in repairs bringing the total invested to 70k leaving 30k profit for them. Thus being 30%”
That helped clear up a lot for me. It’s like the Aha moment Oprah talks about all the time.
All these numbers and formulas tend to make one feel… umm… discombobulated?
I do still wonder though why is it ARV and not FMV? Like i said, as an investor i’m going to want to pay 70% of the Fair Market Value (what it’s worth while it’s horrific looking) so i’ll make my money when i buy. Am i thinking too much like an investor at this stage?
Usually there is not much diffrence between the ARV and the FMV
If you have rehab investors that you plan on selling your deals to, then simply ask them.
As to price, rehabbers don’t think in terms of buying at a discount of the “as is” value. That’s what the wholesaler does. A rehabber who buys from a wholesaler is essentially paying “retail” for the unfixed property. The rehabber makes their money by fixing the property and retailing it for top dollar.
As to formulas, you have to use whatever works for your area and for your investor/buyers. Using a 70% formula won’t work if your buyers only want 65% deals. So you need to know what your potential buyers buy at.
Islander’s formula as given has flaws. He has already figured his “profit” into the equation, so his $40k max offer includes his profit. So what he should be offering is a max of $30K with a $10K assignment fee to the rehabber for a total rehabber cost of $40K.
Also, an opinion only, but one formed from experience, $10K on a $100K ARV property is entirely too much to expect on a wholesale deal unless you can actually get it under contract for $30K or less.
A wholesaler works on quantity, not quality. In other words, you make lot’s of money by selling lots of deals. You sell lots of deals, by finding really good deals and passing the profit on to the rehabber.
Roger ur right I had the formula wrong. my point was that the investor would have a 40k investment.