To Deal Or Not To Deal
How do I know if a deal that looks good, is really a good deal. For example a wholesaler is selling a house for 30K, with a rehab estimate of 40K, the ARV is 85K (based on recent home sales in the area)? How would I go about determining whether it is a good deal?
Secondly, say this is a good deal. What type of financing should I go after (I have excellent credit)? I don’t think a bank will give me a loan base on the ARV.
For a good deal in a wholesale rehab property, you want the purchase price to give you about 30% equity in the after repaired value of the property.
In your example, with an ARV of $85K, 30% equity means that your purchase and rehab costs can not exceed $59,500. If the rehab estimate is solid at $40K, then you should not pay more than $19,500 for this property.
Here is a "rule of thumb" for knowing what a good deal is.
"The beginning" of a good deal is 80% ARV - repair costs...
So.. ARV 85K X 80% =68K
Subtract 40K
Purchase price should be no more than 28K
Go to your reia club and see what money is available. I have one credit union that will lend to 80% ARV and several hard money lenders at 12%
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