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 comparable. (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.
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What contracts are needed for wholesaling real estate?
You need a simple real estate sales and purchases contract but you may also need assignment, joint venture or LLC transfer contract.
It depends on how it is structured.
How do you write a wholesale contract for real estate?
Simply contact an investor-friendly title company for a copy of simple real estate sales and purchase contract and BOOM*
Can you make money wholesaling real estate?
Yes you can make money as long as you understand it is a real business with need for real marketing activities.
How do I fill out a wholesale contract?
A wholesale real estate contract requires the name of the parties (buyers and sellers), the subject property, consideration, terms and proposed closing date.
Is wholesaling real estate illegal?
If wholesaling as a form of trading goods is not illegal, wholesaling is not and will never be illegal.
However due to abuse, what we found in recent times is the rise of state regulations.
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