Im interested in wholesaling properties, but there are several questions that I need to find the answers to.
I was told in order to have a good deal the following things must be considered.
Max Selling Price:
Acquisition Cost(title,insurance, etc. )
Repairs (estimated) :
Four month Average. Hold Cost :
Min Profit (15%) :
Misc expenses (5%) :
Cost to Sell (5%) :
Max Purchase Price :
Additional out-of pocket amount :
But there are three of these things I don’t quite understand. Maybe someone could shed some light on this for me, or at least point me in the right direction.
How can you find the average days on market? Is that something that you have to contact a realtor about, or can you find this on a regular MLS website? If so, which one?
Second how does one figure the holding costs? Every rehabber’s situation is different. Some people use their own money while others use hard money. Is there some sort of average to fill in the blank while Im trying to figure out if a deal works?
And lastly, what are the misc. expenses? What should be budgeted for such things?
Any responses will be greatly appreciated.
Thanks
Aarron
Aarron,
To be successful at wholesaling, what you need to do is find good deals (really good deals) AND pass them on to your buyer.
To do that, you have to have a very good understanding of your market. My suggestion is to go look at a minimum of 100 properties for sale in your target market and see what is selling for what. Review your market’s average DOM (yes thru a realtor). Learn the market.
As to your numbers, you need to know your realistic selling price, not max. That is what MOST new wholesalers try to do and all it will get you is frustration. If the MAX selling price is $100K (highest possible) do you think that it will really sell for that in 4 months or less? Doubtful. Much better to give a realistic selling price of $90K and base your numbers off of that.
An overestimated cost of repairs is all you really need to have available. As you said, every investor is different, and it’s not your concern about their holding costs, resell costs (and it costs much more than 5% to sell), etc. What you need to know is what is their MAX purchase price based on resell value AND be LESS (the more the better) than that.
Raj
Roger,
How large of an area is one to get to know? Of course ultimately it is up to me, but being in larger metropolitan areas a person can be all over the place. Any advice on how to target an area? Is there such thing as too large of an area?
Thanks
Aarron
When starting out limit your areas to 1 or 2 neighborhoods. Get to know them in and out and what homes are worth, where people move from into these areas and where the sellers tend to move to… Typically working an area in a large city can be about 2miles by 2miles and that is alot of homes and will consist of a several thousand homes.
Look into either low income areas or low to middle class areas. High end areas are the toughest sells.