On the Goddess’ free audio, her formula was ARV-$40k-repairs-your profit=max bid price.
I don’t remember her mentioning 30% to be the investor’s profit. The $40k is the investor’s profit on properties that are $140K ARV and above according to her free audio unless something has changed since the audio was recorded.
Most investor’s articles that I have read range from 20%-30% below ARV as a good max offer.
rkmin,
This is a WHOLESALERS formula. If you have other creative financing techniques you can apply to houses in your area and still make a quick profit the use that instead. The houses you get at this discount level will be from VERY motivated people and not just your ordinary sellers. But a wholesaler is a WAY-OUT for people who NEED to cash out quickly. This is one technique out of many available. You are to find what works in your area to make money which is why a lot of people try to learn everything out there about creative financing.
As a wholesaler you need to know your exit strategy which is to sell to rehabbers. Rehabbers need to get hard money loans in most cases so you need to know how they will fund the deal. This scenario is VERY attractive to hard money lenders and rehabbers so you should NEVER have problems finding funding especially if you have been networking like you should be with other investors and professionals.
Just a side note, if you can wholesale in your area you can almost do anything with the house at that point. You can rehab the place yourself and/or find a renter. Some people don’t do any rehab to the property and do a lease/option and sell as a handyman special so they tenant-buyer would be your rehabber and they will be paying you monthly to stay in the place and fix it up.
rkmin - Actually, in my opinion only now - her $40K is a little off. She was saying over $140,000 use the $40K. She’s dealing with very low priced homes in Cincinnati. If you have a $500,000 property and only take out $40,000 less repairs and assignment fees - you’re cutting yourself short. I like to use the .7 (or 70%) - formula for all deals no matter what the price. Reason being, like REIman states, you can sell that house fast to another wholesaler or flip it yourself or whatever. Its a very “hot” property and you won’t get caught holding it or making no profit.
You can use any formula you’d like. But I think this one is an ultimate formula for quicker turn arounds.
Problem with just doing a 20-30% off ARV is that your repairs can be small or huge and that blows that 20% - 30% real quick.
Okay, using the formula say you have a house for:
$300,000 X .7 = $210,000 - $10,000 repairs - $5,000 assign. profit
Your Top Offer would be: $195,000 - but you should try to get it for even less if you can
Now you find a buyer preferrably a cash buyer:
You sell to him for $195,000
because he now has $10,000 repairs to add to that price
and pays you $5,000 and adds that to price
Total = $210,000 (70% of the $300,000) since he’s looking at 30% below ARV
Does that help?
That breakdown helped a lot. You do not factor in the other expenses like closing costs and holding expenses? Is that part of the investor’s 30% profit?
Based on the formula and example that, isn’t a $5000 assignment fee kinda small?
Hi - Glad it helped. The $5,000 fee is minimum for the TOP bid price. If you have room in there and get the property for less, your fee can go up. There’s really not a lot of work except getting the owner to sign a purchase contract, then you assign it to a cash buyer. You have no other fees as the cash buyer pays the closing costs, etc. You are a true “middleman”.
P.S. Many deals won’t fit this formula so you’ll have to look for them or work for them. You won’t get deals like that from a FSBO or someone not in big financial straits. You may find that the properties will be up-side-down meaning they owe more than you can offer. Then you can go to the bank for a short-sale deal.
Can you wholesale a short sale?
For example, let’s say a seller owes $500k and their house’s ARV is $500k.
So, I negotiate with the bank doing a Short Sale and get the price for $400k. Do I have to come up with my own money to pay off the bank immediately or can I assign this contract to someone else?
Would my exit clause in the contract with seller state something like:
“Subject to Short Sale price of $400k”