Rehabbers formula for buying investment properties

I have read through these forums and found a few different methods on how to calculate the max offer price a wholesaler can offer on a property…

I would like to hear from an experienced rehabber on the formula you use when you determine if you will buy a property from a wholesaler…

In my market (Milwaukee, Wisconsin) it is most definitely a buyer’s market right now. That means that there are a lot of properties available, and not enough buyers.

This means that I won’t pay anything at all to a wholesaler right now. I can find very good rehab opportunities on the local MLS by myself. Cash buyers can get absolutely great deals right now on properties that would otherwise not qualify for conventional financing due to their current condition.

3 months ago I bought a single family home for $66,000 for all cash. Stuck $22,000 into it, and just sold it for $141,900. I also just bought a 3/3 duplex for $39,000 which will only need about $10,000 to bring it into service. It will then be worth $85,000 according to comps, but more importantly it’ll generate $1250 a month income. $1250 a month off of a $49,000 investment isnt too shabby, and I won’t sell this anytime soon, hopefully.

Point is that I found both of these from the MLS directly. There are many other deals available, I just do not have the time or manpower to rehab them quickly enough. In a seller’s market I would pay a premium for a wholesaler to bring me properties I can make a profit on. In a buyer’s market, I can skip this added expense and find them myself.

End house value all fixed up nice and pretty . $100k

  • repairs X $20k ?
  • holding (cost of money,(mtg.) insurance , tax,) $10k
  • realestate commission$4k
  • your profit $?k
    = purchase price

Visual_Underworld how are you searching the MLS for properties? Are you just doing a general search, or do you have a realtor license and can use the full search capabilities of the Matrix?

Mine is like cambellgroups

Figure the what could it sell for now if completed ARV

  • repairs (varies by space 10k per 1000 sq feet is my average)

and same numbers. always do worse case scenario. I usually do it at 75%-80% ARV Figure for my own protection. and figure repair costs higher, if worse case scenario still yields at least 10k. Then I go for it.

Also having a realtor do comparable market analysis for you is benificial towards finding out what the arv could honestly be.

ARV x .7, less repairs and costs (closing, holding, etc)

I still use the formula I learned years ago.

ARV x 65% - Repairs= $offer price

I’ll vary from 60% - 70% depending on the property and location.

But if the ARV is $400,000 or more does anyone bump up to 80% or even 85% .

how do you determine the ARV and/or its %?

To determine ARV is finding other homes of similar sizes and locations and judge how uuch they sold for with their nicer fixtures, realtors do these just at no repairs CMA’s but can do it for people who are thinking of selling and want to improve the price. Also appraisers familier in REI will also be able to do that. For official unbias opinions.

But i can look at a property now that i’e done a few… just look at the prices around and compare what my finished product would be.