It's critical to know the maximum purchase price on any deal, especially a wholesale deal, because the goal is to flip the property.
Campbell, NY (PRWEB) June 15, 2013
When investing in real estate every investor knows how important it is to make the right real estate offer. Make the offer to high and investors will have a hard time finding an end buyer. Make the offer to low and another investor buyer will steal the deal.
Wholesale expert, Cameron Dunlap knows exactly what it means to make the right offer. Cameron says, "It's critical to know the maximum purchase price on any deal, especially a wholesale deal, because the goal is to flip the property. If the purchase price is too high, it's going to be really tough to find an end buyer investor rehabber that will buy it. So the idea is to buy it low enough for the investor to make a profit and give the rehabber a screaming deal."
This new video reveals the exact formula he uses when wholesaling real estate. This formula allows him to determine the maximum purchase price or offer to make when wholesaling properties. The first thing he does is determine what price other retailers or rehabbers are willing to pay for a specific deal. After determining what retailers will pay, he plugs it in his formula. That formula is
(ARV x .70) - repairs = sell price.
ARV stand for After Repair Value. So basically, this is what the property is going to be worth after it's repaired. He determines this value by running some comps in the area of both active listings and sold properties. The .70 is what he has determined a rehabber will pay for properties in order to still make a profit. The formula is designed to give the retailer or rehabber a 20% margin since they are the ones fixing up the property.
It makes sense then if investors want to make a profit by wholesaling a house, they must pay less then the above equation. He then takes an additional 5% deduction to the formula so that way he can calculate in a little profit for himself.
Here is what the formula looks like when determining maximum purchase price.
(ARV x .65) - Repairs = Maximum Purchase Price
Again, this is the maximum purchase price. As a general rule, investors would never make an offer more than this. However, it's not uncommon to make offers lower than this. By doing so would simply increase the investors profit margin.
This formula is one that is used on homes that are in need of repairs which is how investors can make real estate offers that fit this formula. Nicer, newer homes that are in no need of repairs, may not fit this formula as well.
For those interested in learning more, please visit http://www.camerondunlap.com