To the seasoned vets out there, is this right?

Bird Dogs, Wholesaling
1

A light bulb finally went off in my head on how to make the right offer and to know what a good deal is. Id like to explain it and then someone just comment if I am right or what I am doing wrong:

  1. The price they are asking for means nothing. I want to know the ARV. To get an ARV I want an agent to run a CMA with matching specs or close to. In this example ARV= 100k

  2. Once I have the ARV I need to get an estimate on repairs. I can have a contractor do this. I ask him to be on the high side and then I add a little more for cushion. He says 15k so I bump it up to 20k. 100-20=80k

  3. I factor in the rehabbers profit of 20k. 80-20=60k

  4. My profit so 60-5=55k and boom there it is. If everything is solid, my offer is $55,000.

So what are your thoughts, am I close?

2

Your formula should work as long as you don’t need to make an offer in a hurry, such as at an auction. I usually ask a realtor I work with to get me a “quick sale” price, meaning below the comps. Then I’ll offer 65% of that, more or less. It depends on the amount of repairs and you’ll get pretty good at coming up with a ballpark figure after a couple of rehabs. The reason I use a quick sale price is that I want exactly that – a quick sale. Holding out for full retail value can kill your return. Let’s say you have 100K to invest. If you settle for a 10K profit, instead of holding out for 12K, for example, you’ll probably be able to close that deal faster than if you hold out for the bigger profit. When you turn your money over faster (velocity of money, in economics terms) you can do more deals with the same capital and increase your return on investment. You’re definitely on the right track. Just get a lot faster at it so you don’t lose out on good deals while you’re waiting for a contractor to get back to you.
:beer

3

In our market for the bread n butter areas it is 65% ARV minus repairs minus fee. You can also calculate similar to your offer, but you should know your market very well. Having an agent pull comps is always a gamble. We always run our own comps.

4

make sure whoever runs comps knows the area really well, sometimes a difference of a few blocks can mean thousands of dollars difference in “real” price, however if someone just pulls comps closest to the house you want to know the value of, they might have the other side of the street figured in,knowledge of the area is vital