Going crazy trying to make an offer

Hey guys,

This is what I do. Of course no numbers are set in stone, but these work and I stick close to them. Lets use your numbers. Remember this is based on you wholesaling this property to another investor.

ARV $175,000 based on selling, sold and under contract comps. You KNOW this property will sell quickly at this price.
Rehab $50,000 based on 2 or more contractor estimates. Rehab designed to bring the $175,000 ARV
Offer 65% of ARV = $113,750 minus repairs = $63,750 offer.
Offer it to your buyer for 70% of ARV minus repairs $72,500 sale price
Assignment fee of $8,750

What I see so often is people trying to wholesale with out looking at your BUYERS numbers. This is critical to becoming a successful wholesaler.

This is what your buyer sees on this deal.

Buy it for $72,500
Rehab it for $50,000
Sell it for $175,000 OR less to move it.
Commissions, closing costs, utilities, insurance, cost overruns 12% = $21,000
This is the part so many people forget when running their numbers. The costs to SELL the property.

His net profit is $31,500 If he buys and sells with in 3 months.
What if your buyer has money costs like hard money or private money? That could easily cost him $10,000 on this deal. Then his net is only $21,000.

You can play with the numbers to get a slightly higher assignment fee or take a little less.

Michael Mangham
MD Home Acquisitions LLC

So, you do the same calculation for every house you want to wholesale? 65% of ARV and then minus the repairs?

I originally had all of that into our offer and then called the hotline to go over it with someone. She approved it but, then we had more questions and when I called back again I got someone else who said take out the closing costs, electric, gas blah blah blah. So, I changed my offer. Ugh!!!!! Everyone does it different. So confusing.

I do like your way better. We get more money! LOL

Michael,

The commissions, closing costs, etc. $21,000 - does this include the assignment fee?

No it does not. The assignment fee is the 5% difference between your buy and your sell price. Read post #1 carefully.

Allen And Denise, If you do not figure in the selling costs you will loose big. The person that supplied you with that info is dead wrong. You need to figure your costs (or your buyers) at the back end, not the front end only!!! You need to know what you can sell the property for minus your selling expenses. Not all come out of pocket, but are paid at closing but you MUST include these figures whether you intend to keep it your self or present the deal to your buyer.

Here is an example, by the way I see gross profit numbers posted here all the time. NET profit is what you take home. You should know what you or your buyers net profit will be. How could you present a deal otherwise? Or for that matter KNOW it is a good deal?

Your house will sell for:
$175,000
Commissions, closing costs 9% comes out at closing:
$15,750
You can negotiate lower commissions and closing costs, have your buyer pay them, etc. These numbers are not cut in stone, just a guide.
Insurance, utilities, holding costs, overruns etc. 3% OUT OF POCKET!
$5250
Rehab. OUT OF POCKET
$50,000
Purchase of property
$72,500 OUT OF POCKET

NET profit $31,500 If it is a cash deal and there are no money costs.
If you did not add in selling expenses you would show a GROSS profit of
$52,500

Knowing all these numbers and figuring your offer and your presentation to your buyer based on net profit is a better way in my opinion. My opinion is you should know each deal's numbers like you were doing the entire project yourself. This will make you a successful wholesaler and even a bird dog!

Good luck out there and CONGRATULATIONS for taking action!

Michael Mangham
MD Home Acquisitions LLC

I'll second that. In this market you have to figure your selling costs and your incremental holding cost (if any) of it will eat into your profit and can become a big fat loss.

I have a question on where the buyer profits.

For example on some of the deals I am working on the ARV is around 380k. Foreclosures are around 240k and the repairs in one house is about 15k. So this would take me all the way down to 225k. If I have a CASH buyer who I assign the deal to for 245k, would he make profit.

So my buyer pays 245k cash, about 30k in insurance, closing cost etc and then repairs about 15. He's already at 290k. Then to sell at 380k he only made 90k in profit. But after what he paid to get the place isn't that a loss?

I really hope that made sense. But am I missing something?

Wow I just reread this realized what I wasn't seeing. Just a little brain fart everyone sorry.