Buy and hold investors will often pay 90%, or less, of ARV (less repairs).
Rehabbers will often pay 80%, or less, of ARV (less repairs).
Wholesalers will usually pay 70%, or less, of ARV (less repairs).
Rehabbers are not the same as wholesalers, and neither are like buy and hold investors.
Staying with the 70% of ARV formula, keeps the doors open for more opportunities to sell. However, if you maintain a broader pool of buyers, you can make money on projects that can’t be purchased at that level of a discount.
Keep in mind, it costs the same amount to rehab a 1500 sqft house that is worth $35,000, as it does to rehab a 1500 sqft house worth $135,000.
In the case of properties below $50k, he says to modify the formula: MAO = ARV times .9 (to account for closing costs, holding costs, etc.), minus $10k (absolute minimum for profit), minus cost of repairs.
I was discussing offers with an investor that buys low-end deals, like you’re talking about (~$35K), and he said his bids usually hover between 30 and 40 percent of ARV.
He says that no professional buyers pay more than about 50% of ARV (less repairs) at this price point.
The two things that can effect the quality of a given deal, regardless of the price point, is the motivation of the seller, and who knows about the deal in the first place.
That’s why it’s really profitable to develop and maintain a lead-generation network of unadvertised deals. This can be the result of direct mail, word of mouth, bird dogs, paid/free classified ads, creating tickler lists of rejected offers and any number of marketing methods.