i am new at wholesaling and i have a question. my first wholesale deal was to a landlord. he was stating that the 70% arv rule does not apply to landlord properties.
all the training i have listened to always talks about 70%. do you know if there is a different way you do landlord properties when figuring the value?
Most rentals are sold to new landlords at retail. That’s unfortunate for them because it dooms the landlord to failure, but that it is the reality of the situation. Since this is the largest group of buyers of rental property, then yes, you could certainly sell some properties to landlords at prices above the 70% rule.
On the other hand, successful landlords WILL be buying at 70% (or less) of market value. Without buying at a big discount, landlords will have negative cash flow and subsequently fail.
So, you are right - successful landlords will certainly be buying below 70% of the market value. The landlord that you talked to was also right - there is a never-ending supply of newbies who pay too much for their rentals and then fail in a short period of time.
When wholesaling you have to know what your end buyer needs, landlord or otherwise. You essentially take their needs and find a property that matches it, like a real estate matchmaker. For rehabbers find out what their ARV target is. For landlords find out what they expect. Maybe they are looking using an ARV target, maybe they are using a gauge like the multiply gross rent times 50 rule, maybe they have another formula they use. Regardless of how each person gauges properties you need to find out what they want. We are in a falling market now so myself personally I am looking for rentals that would be 50-60% ARV less repairs. I know I am among the minority as most people would STILL even in this market buy 80-100% of ARV and think they are getting a deal. Maybe the ones buy at or near retail will be ok if they pay for their cashflow with a large downpayment or are doing a 1031 and have a lot of cash to put into property ASAP due to time crunches. Maybe they are using it to offset their high paying day job come April 15th. Hell maybe they have enough extra cash laying around to pay the negative cashflow until the market turns around and the appreciation catches up to what they put in out of pocket. Regardless none of those scenarios fits me as I don’t have a pile of cash and don’t want to come out of pocket every month, it defeats the purpose of a business in my eyes.
thanks for all the advice. what exactly is the 50 times rule. i have heard of the 10 times rule. sorry to sound so dumb but i am new to this and still learning. thanks for all your help.
There is no 50 times rule. That is simply a different way of stating that you generally need to have gross rents of at least 2% of the acquisition cost (purchase price + rehab) if you want a rental to cash flow. In other words, you can multiply the monthly gross rent by 50 to get the maximum purchase price. You would use this as a screening tool.
thanks for all the advice. Does anyone know a good place to find local landlords in the area? we are in cecil county, maryland and Delaware.
I had a question about the “gross rents muliplied by 50”
Is it the gross rents for the month or x 12 (yearly)
does the 45-50 include the mortgage payment.
I am unclear about what’s included in the 45-50 percent
An example would be appreciated
If the gross rent for a month is 2000 (x 12 = 24000) would I not want to pay more than 2% of what?? I’m lost…
2000X50=100,000 (what you want to pay for the property)
I’ve learnt that much from property manager’s posts in my brief time on this forum.