1d ago in General discussion
Finding Your First Deal: Understanding the Numbers (pt. 2)
Alright, you've found a potential deal—great! But now comes the part that trips up a lot of new wholesalers: the numbers. You can't just slap any price on a property and call it a day. You need to know what makes a deal good and, more importantly, how to assess if it’s going to be profitable.
1. The ARV (After Repair Value) This is the big one. ARV is what the property will be worth after it’s all fixed up and ready to hit the market. Think of it like the "glow-up" moment for the house—you know, when a fixer-upper transforms into something HGTV-worthy. To calculate this, look at similar homes (aka "comps") in the same area that have recently sold in top condition. Your goal is to figure out what retail buyers would pay for your property once it’s rehabbed.
2. Repair Costs Next up, what’s it going to cost to get the property looking good? Spoiler alert: It’s always more than you think. Talk to contractors, get estimates, and factor in some buffer for the inevitable "uh-oh" moments.
3. Your Offer Price (aka the Magic Formula) Now that you know the ARV and repair costs, it’s time to calculate your offer price. A good rule of thumb is the 70% rule, which says you should pay no more than 70% of the ARV, minus repair costs. This leaves enough margin for you to make a profit and for your end buyer to have some wiggle room too. For example, if the ARV is $200,000 and repairs will cost $40,000, your offer should be around $100,000.
4. Wholesale Fee Don’t forget your cut! Your wholesale fee is the difference between what you contract the property for and what you assign it to the end buyer. This could be a few thousand dollars or more, depending on the deal. Think of it as the well-earned reward for connecting the dots.
Understanding the numbers might not sound as exciting as finding deals, but this is where the magic happens. Get it right, and you'll make sure both you and your buyer walk away happy.
If you have any questions regarding finding comparable properties, running numbers, etc. drop a comment! I'd be happy to help in any way I can, let's get you a check!
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Finding Your First Deal: Understanding the Numbers (pt. 2)
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