Beginning Wholesaling Question
I've been looking for fixers, and Ron Legrand has a formula of 70% of after repaired value minus the cost of repairs.
I'm in a really active market, so is that still good to use for fix-up properties.
Also, when I come into some which are in nice shape and don't need repairs, how much under the market (on the average would be good? 20%? 30%?
Rambler,
Percentages have their weaknesses if they are the only basis of your thinking. Try to look at a broad range of issues.
1. Approximately 10% of your sales price will go to RE agent and closing costs.
2. How many payments will you have to make before property is fixed up and sold? The most common mistake amonst new investors (so I hear) is not having enough cash reserves to handle projects when they go longer than expected.
3. What will it cost to fix up and what room do you have for unexpected contingencies (building inspectors, permits, contractor delays, etc).
Factor all of these items (and the other issues that might come into play) and determine if there is enough profit in the deal for you to risk your money.
HTH,
Robert
[addsig]
Robert,
Your advice does make sense to me, but 70% of ARV minus, say another $10k or $20k for the estimated repairs can sometiimes mean you're offering $80k, $90k or $100,000 under the asking price. I think that's about as conservative as you can get, and my main concern was if I could offer more, not less (because I haven't been getting many, or to be honest, any).
Rambler,
I think to start at 70% and subtract your cost of repairs will eliminate a lot of deals you might otherwise have. What you are really saying is that you want a 30% profilt if you sell at retail value. My understanding of the 70% rule is that this is just a quick way of estimating what you should look to buy at, assuming that your repairs, closing costs and profit come out of your remaining 30%.
Robert
Robert:
Percentages are just a guideline. You need to consider my formula for the 5 things to consider when purchasing a house to buy/sell:
1. Purchase Price
2. Acquisition Cost - are you going hard-money, private money, cash, subject to, credit line?
3. Rehab Cost
4. Carrying Cost x 6 months.
5. Selling cost - are you selling by owner, with a realtor, MLS listing service?? Typically you can figure at least 3% for charges like: title, escrow, FHA non-allowables, home-warranty, property taxes, termite, home inspection repairs (Those guys get on my nerves!), etc....
If you are selling by owner, then it wont cost you a thing besides items mentioned above. If you sell with a realtor you could expect to pay another 1-3%. If you use an MLS Listing Service, then $300-$600 dollars.. It all depends. I recommend trying to sell it by owner as well as putting it in the MLS with a listing service company for $300.00. This has worked well for me.
If you are going to start wholesaling the key is to leave room in the deal for your wholesale buyer. Typically, in California I can wholesale deals all day long to investors that can make $10k - $15k selling with a real-estate agent paying 6% commission. Typically, they sell them by owner so they make more.. If you are going to wholesale, run your numbers and make sure you leave some on the table for you wholesale buyer.
My advice to you is to try to make $3k-$10k per deal. There is no reason why you cant do 1-2 deals a month with the correct marketing techniques...
Best Regards,
Jeff Adam
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