Determining my offer price

[Jeanine Grey]

I've been looking at several properties and want to wholesale them once I put them under contract. Is there a particular formula that I should be considering when determining my offer price?

Thx,

J

[Robert Burns]

The starting point is to be sure you have an accurate After Repair Value (ARV) for the property to accurating determine your offer price to the seller and the what price you will except from your buyer.

The initial steps in determining the ARV are to use comps for similar properties sold in the area in the last six months to give you some idea of the ARV and bringing in a contractor you trust to inspect the property and submit a bid for repairs.

Then you must determine the amount of profit your buyer will need to be interested in doing the deal. A rule of thumb is 30% or $25,000 which ever is greater.

Then the final piece is to determine how much do you want to make for wholesaling the property? Things to consider are how much of a spread is there between the selling price you offer the seller and the ARV, how much time and effort have you expended on this deal, how many deals do you expect to do with this buyer.

Most wholesalers have a minimum profit figure. In my case I use 2.

Minimum $3,000 if the deal takes less than a month.
Minimum $5,000 if deal takes month than a month.

Another way to approach the buyers profit estimate is to have qualified the buyer when you first interviewed him and asked what profit target does he use.

Once you've come up with all the numbers you simply take:

ARV
minus cost of repair
minus buyer profit
minus wholesaler (your) profit
minus misc costs (realtor fees, etc)
= Offer Price

Hope this helps!

[Leasingoptions]

I think if you are buying at below value or at a discount, you will ahve trouble wholesaling them.
if you buy a $200,000 property for $150,000 then you could very well sell the paperwork for $25,000 as there is still something in it for the people buying it from you.
LO

[Joshua Weidman]

Jeanine,

I have a company in Philadelphia where I wholesale between 6 and 12 properties every month. Leasingoptions is WAY off base. In this market all investors are tightening their belts. I had been wholesaling properties at 70% ARV - construction until last spring. Many private lenders changed their lending limits. Now I use the following formula:

65% x ARV - Construction - Assignment Fee = Offer Price

I usually start my fee at $10,000. The end buyer will always negotiate. Make sure there is enough room in the deal to conceed on price a bit and still put cash in your pocket.

The most important thing about this formula, as Robert pointed out, is an accurate ARV. Work with a Realtor who will give you access to their MLS (if you aren't an agent). Only look at real comps and minipulate your construction numbers to reflect the changes needed to bring the home to the condition of the other sold properties used to estimate the ARV.

I find that my offer price for a property usually will be between 20-35% of the ARV of the property (average ARV between $85-150,000).