have a seller that has a property that needs to be fully rehabb, now he has already started to do some of the work himself but he states it will need about $75,000 to complete it. Houses in that area are selling from the 300s to the 400s and some have sold for as much as $1000,000. He is asking for $250,000 but I would like to know would this be a good deal to wholesale? If so… how would I analyze my wholesale fee?
I am in Florida… what we “generally” do is take the full market value- (what the house should sell for, same size, bed bath etc.) multiply by 65% and subtract out cost of repairs. That is a general offer.
Then when we “wholesale” to someone, do same equation by 70% to find out where to start your asking price to buyer.
The difference in the purchase price and wholesale price is your profit. Sometimes that # can be 3K-25K+? This sometimes gives you room to negotiate with seller or buyer if an unexpected “thing” pops up.
You also have to take a step back and consider the following:
area- Is it actively selling or not.
spread: What is dollar amount “buyer” will make after cc, repairs, holding time, realtor commission etc. (If all they will make is 15K when all is said and done, you may need to adjust your #’s)
Hope this helps…
First, you need to know a very solid number of what the house could realistically sell for in today’s market. Putting the value anywhere from $300k-$1mil tells me you don’t know the market well enough. Anything you do is meaningless unless you can put a reliable number to the After repair value - or ARV.
That said, most rehabbers go by the formula of (ARV*70%)-(RC-CC)=Maximum purchase price
:Where
RC= Repair Costs
CC= Covering Costs (sales fees, interest on HML, etc)
So, on a $400k house where the rehab would be $75k and lets say the carrying costs and fees will be $20k
Then
ARV($400k) 70%=$280k
minus CC and RC ($75k+$25k=$95k)=$185k
So in this case the most a rehabber would likely pay will be $185k. Anything you buy it less for is profit. $10k would be good, $20k better.