Not knowing these 3 steps is responsible for most rookies confusing locking in a real estate wholesaling contracts with deals.
So the more you understand what I share in this lesson, the more your contracts correlate with actual deals that close.
But keep in mind there are other factors still beyond the control of this mathematical calculation.
So before you lock a property under contract, you have to determine the maximum allowable offer that will become the purchase price on the real estate wholesaling contracts.
In order to determine that magic number, we have to go through the 3 steps.
Step 1 - Estimating Rehab Cost
The idea of real estate wholesaling is to find deeply discounted properties first.
Therefore that presents the question; why would a homeowner want to sell a property less than its value.
Many times, the property needs work and the owner just doesn’t have the resources to fix the house and list on the regular market.
So you will need to estimate the cost of repairs needed to bring the property up to speed.
That number will be adjusted into your maximum allowable offer.
Step 2 - After Repair Value (A.R.V)
The ultimate end goal is to secure a deal (an accepted offer) that will lead to profit as soon as possible.
So there is very little room for speculations when determining the projected sales price once a property is fixed up.
We do so by pulling the comparable sales that happened within the last 6-12 months within 1 mile radius of the subject property.
After that, a weighted average of the sales and purchase price of the comparable properties is used as the after repair value.
I use this tool to pull comparables. (EmpireBigData.com)
Step 3 - Calculating a Maximum Allowable Offer
The last 2 steps lead us to this point. The offer is what starts the making or the breaking of the deal ultimately.
So it’s derived by actually multiplying the after repair value (A.R.V) by a factor that creates the equity spread that you want.
It’s traditionally 70% but it can vary depending on the local market.
If it’s a highly competitive market like New York City or Phoenix Arizona, it can be as high as 80% or a little more.
And it can be as low as 55% in some markets.
For the sake of simplicity, let’s use 70%.
Simply multiply the ARV you calculated in step 2 by 70% and the deduct you estimated rehab cost.
That produces your maximum allowable offer.
I have created a free calculator at DealEstimator.com to help you do all 3 steps much more easily.
Below is a question for us to address with this lesson...
“ How is it going?
I’m a new real estate investor out of the Cincinnati OH area.
I made my first cold call and got my first appointment tomorrow 😁
It’s a 2 unit apartment that has been vacant for 8-10 yrs.
He needs full rehab and says he owes back-taxes and doesn't know how much.
He’s asking for $25,000 and willing to negotiate the price.
I’m struggling with finding out how much to offer because I don’t know how much is a full rehab and how much he owes.
I would really appreciate any advice or helpful tips so I can move forward.”
Enjoy the video.
BLOG POST - https://myempirepro.com/blog/
ABOUT YOUR HOST ::::|
Ola "Tux" Abitogun is the Creator of myEmpirePRO and author of Smart Real Estate Wholesaling. He became a FULL TIME entrepreneur in October 2006.
He is a computer engineer and an engineering management graduate from New Jersey Institute of Technology; (NJIT) class of 2004/5. He was born in Dallas Texas and raised in Nigeria by his Nigerian parents. He considers himself a proud Nigerian American.
Today, he is a marketing addict, trainer, marketing and business consultant, real estate investor and all around serial entrepreneur. Most importantly, he is husband and a father. The professional work he is mostly proud of is personally helping 1,000+ entrepreneurs around the world reach greater heights in their careers.
GET MY BOOKS ON AMAZON
myEmpirePRO :|: http://myEmpirePRO.com