Real Estate Godesses Guide to Wholesaling

[cherdwelth]

Wouldn't the title search reveal mortgage info?
From your formula, whatever they owe may not make a difference unless it was up-side-down.
You would have to know that info though in order to see if the deal was worthwhile. You could get an authorization from the seller to contact their mort. co.

[REIMan]

Well $40k profit calculated is great when wholesaling but most hard money lenders use percentage in their calculations so other guru's use this formula:

ARV - 30% - repairs/closing costs/Assignment profit = Your purchase price MAX.

Most hard money lenders allow 65% - 85% LTV, charge points up front and have high interest rates.  If you are able to purchase this low then you are 0% out of pocket expense if you decide on rehabbing the property yourself also if you show this to another investor you are almost guaranteed any "rehabber/investor" will purchase it for your assignment fee.  But you should always be networking and finding people for every aspect of the deal.  As Steve Cook says you should control the deal from beginning to end until the deal if finally closed and you have your check.  Find hard money lenders for your buyers just in case.  Since you could get burned at the closing table then you would be on the hook to lose your Ernest Money Deposit especially if the deal went south.  But I know other investors will not let that happen and will line up multiple buyers as a backup.

[cherdwelth]

REIman - I like that formula and am using it.  I agree with your post. Thanks!  

[rkmin]

ARV - 30% - repairs/closing costs/Assignment profit = Your purchase price MAX.

That sounds like a HUGE discount.  The houses that I work with are around $500k ARV.  Taking 30% from that brings the house down to $350k which is huge and most people in foreclosure don't have that much in equity to discount it that far.  And then from your formula I have to knock off even more for repairs and etc?  

I thought the 30% already included the repairs/closing costs/profits?  Am I missing something here or am I not looking in the right places?

[cherdwelth]

That forumla is the one used by the Goddess Guide. I guess if that formula doesn't work out, you need to pass onto the next house or re-evaluate what you and your buyer need to get from it. Most wholesalers want to make 30% and that formula deducts repairs and your assignment profit. The wholesaler you sell to - will then either mark up the property again or do the repairs - either way he likes to have that 30%. Did you listen to the free audio available here? It explains the whole thing.

Just an aside ... how can 30% of the ARV include repair costs? They are a variable and affect your final bid price.

[rkmin]

On the Goddess' free audio, her formula was ARV-$40k-repairs-your profit=max bid price.

I don't remember her mentioning 30% to be the investor's profit.  The $40k is the investor's profit on properties that are $140K ARV and above according to her free audio unless something has changed since the audio was recorded.

Most investor's articles that I have read range from 20%-30% below ARV as a good max offer.  

[REIMan]

rkmin,

This is a WHOLESALERS formula.  If you have other creative financing techniques you can apply to houses in your area and still make a quick profit the use that instead.  The houses you get at this discount level will be from VERY motivated people and not just your ordinary sellers.  But a wholesaler is a WAY-OUT for people who NEED to cash out quickly.  This is one technique out of many available.  You are to find what works in your area to make money which is why a lot of people try to learn everything out there about creative financing.

As a wholesaler you need to know your exit strategy which is to sell to rehabbers.  Rehabbers need to get hard money loans in most cases so you need to know how they will fund the deal.  This scenario is VERY attractive to hard money lenders and rehabbers so you should NEVER have problems finding funding especially if you have been networking like you should be with other investors and professionals.

Just a side note, if you can wholesale in your area you can almost do anything with the house at that point.  You can rehab the place yourself and/or find a renter.  Some people don't do any rehab to the property and do a lease/option and sell as a handyman special so they tenant-buyer would be your rehabber and they will be paying you monthly to stay in the place and fix it up.

[cherdwelth]

rkmin - Actually, in my opinion only now - her $40K is a little off. She was saying over $140,000 use the $40K. She's dealing with very low priced homes in Cincinnati. If you have a $500,000 property and only take out $40,000 less repairs and assignment fees - you're cutting yourself short. I like to use the .7 (or 70%) - formula for all deals no matter what the price. Reason being, like REIman states, you can sell that house fast to another wholesaler or flip it yourself or whatever. Its a very "hot" property and you won't get caught holding it or making no profit.

You can use any formula you'd like. But I think this one is an ultimate formula for quicker turn arounds.

Problem with just doing a 20-30% off ARV is that your repairs can be small or huge and that blows that 20% - 30% real quick.

Okay, using the formula say you have a house for:

$300,000 X .7 = $210,000 - $10,000 repairs - $5,000 assign. profit
Your Top Offer would be: $195,000 - but you should try to get it for even less if you can

Now you find a buyer preferrably a cash buyer:

You sell to him for $195,000
because he now has $10,000 repairs to add to that price
and pays you $5,000 and adds that to price
Total = $210,000 (70% of the $300,000) since he's looking at 30% below ARV

Does that help?

[rkmin]

That breakdown helped a lot.  You do not factor in the other expenses like closing costs and holding expenses?  Is that part of the investor's 30% profit?

Based on the formula and example that, isn't a $5000 assignment fee kinda small?

[cherdwelth]

Hi - Glad it helped. The $5,000 fee is minimum for the TOP bid price. If you have room in there and get the property for less, your fee can go up. There's really not a lot of work except getting the owner to sign a purchase contract, then you assign it to a cash buyer. You have no other fees as the cash buyer pays the closing costs, etc. You are a true "middleman".

P.S. Many deals won't fit this formula so you'll have to look for them or work for them. You won't get deals like that from a FSBO or someone not in big financial straits. You may find that the properties will be up-side-down meaning they owe more than you can offer. Then you can go to the bank for a short-sale deal.

[rkmin]

Can you wholesale a short sale?

For example, let's say a seller owes $500k and their house's ARV is $500k.

So, I negotiate with the bank doing a Short Sale and get the price for $400k.  Do I have to come up with my own money to pay off the bank immediately or can I assign this contract to someone else?

Would my exit clause in the contract with seller state something like:

"Subject to Short Sale price of $400k"