So many people have asked "How to calculate wholesale price for real estate?"
And this one is not hard to do.
But here's the thing: Doing it right is essential.
Doing it wrong will drain bank account and get you into trouble you cannot even imagine.
So, this is a great episode.
I cannot wait to tell you how to calculate it properly.
Let's go.
Okay, so we are talking about calculating wholesale price for real estate.
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So, let's get into it.
Okay.
So, not only am I going to tell you how to calculate and how to break down the numbers.
I'm going to give you the secret on how to make sure that you do not get this wrong and
that you get it right every single time.
Wholesaling real estate.
We all know, some of you know wholesaling real estate is when you find property that
is below market value.
You get the property under contract and you market that property for a higher price.
Whether you market the property and you flipped the contract to another investor that pays
you a fee.
Or if you partner with someone and they buy the property.
And this is a great way for new investors to get started in real estate investing.
And again, this is how I got started investing in real estate with absolutely no money and
terrible credit.
And so, this is why I am telling you how to do it, too.
So, let's kind of go to the first thing that you need to do when talking about calculating
the price.
So, before you can actually get into getting that big pay check from that investor that
you flip the contract to, in wholesaling real estate, you got to get the number right.
So, when you're marketing to people with property problems, one of the best ways to get them
to sign a contract with you and get the conversation going is to say that you are cash buyer.
I know that you guys have seen this before.
And this part absolutely scares people.
But I'm going to tell you do not be scared.
I'm going to tell you how to do it and why you get to tell people you are a cash buyer.
The way that this works is many of the properties that you are going to be marketing, these
people are in some type of distress.
These are people that are in foreclosure, bankruptcy.
divorce.
You know, someone moved away, someone died.
Something happened.
And so, they are in a financial situation where they need to sell that house.
Well, welcome you.
So, you've been marketing and you've been finding these people.
And now we're to the point where they're like, "Okay.
How much can you give me for my house?"
And there's a calculation that us, real estate investors call MCO.
And that is Max Cash Offer, okay?
Maximum cash offer.
And the calculation for your max cash offer is 70% of the ARV minus repairs.
Okay, so what does that mean?
Alright.
Let's break it down for you.
So, when I say 70% of the ARV, let's start with that part of the calculation.
The ARV is your After Repair Value.
You after repair value is what you think the property is sell for once it's all fixed up
and ready to go.
So, in other words, this is what comparable properties are selling for in the neighborhood.
So, let's talk about what that means.
So, say you have a property on..
You know, it's a 3 bedroom, 2 baths.
It's $100,000, okay?
And all of the homes in the area are selling for $100,000.
They're all fixed up and they're nice.
But your property, you found it through someone that is in foreclosure, for example.
So, the property is maybe not in the best condition.
And the seller is in a crazy situation where there are about to lose their home to the
bank.
And so, you can help them save their property or you could buy the property from them so
they don't actually go into foreclosure.
Maybe they're just behind on their payments.
You get to help them so they don't go into foreclosure.
That's one of the situations where I tell you to find people.
So now we're talking about the ARV.
So, the house is in the neighborhood are selling for $100,000.
That's our ARV.
So, when houses are all fixed up, in this neighborhood, 3 bedrooms, 2 baths go for $100,000.
So, let's talk about what you would then offer them.
So, homes in the area are going for $100,000 all fixed up.
70% of the ARV.
So, what's 70% multiplied by $100,000?
That's $70,000.
Okay, great.
Did you offer them $70,000 for their home?
Well, let's now then talk about the next part of the formula.
The repairs.
So, if the home needed absolutely no repairs at all, yeah, it would be 70% of the ARV minus
the repair cost.
Well, in this case, if there's no repairs needed, we're just talking about $70,000.
But let's be realistic.
Most property needs something.
It may need new carpet, it may need new a fresh coat of paint.
All the furniture taken out and then repaint it just to get the smell out of the property.
Little things like that.
Maybe you update the kitchen, the appliances, things like that.
Again, usually there something that's going to be needed to the property to bring that
value up to where the rest of the house is are in the neighborhood.
And so, let's just give an example and say on the low end, it needs $5,000 worth of work.
Maybe you're just going to paint and put some new floors and some of the rooms.
So, in this equation, you would do 70% multiplied by $100,000.
Again that's the ARV.
And then you would minus out the repairs that are needed.
So, in our example, $5,000.
So, what's that?
That's 70,000 minus $5,000.
So, in this example, your max cash offer would be $65,000.
So, that's the calculation to get you to what we would want the max cash offer to be.
And I'm going to give you some great information as to why and where this calculation came
from.
So, again, the way that most wholesalers make money is by marketing their properties to
fix and flippers.
The people that invest in properties.
You know, put tenants send them things like that.
Many investors want property that they can get below market value so that they can make
a little bit of money on the property.
Now, most wholesalers will sell their properties or assign those contracts to people that are
fix and flippers.
And as a fix and flipper which I am, we want properties we could actually make money off
of.
So, in the example that I gave you, if you got the property for $65,000 and I had to
put $5,000 worth of working to it, well, that means the houses in the area are selling for
100,00, I have about $30,000 worth of profit.
Roughly speaking, of course we have closing cost and carrying cost and things like that
that we have to take into account.
And that is the reason why most fix and flippers say 70% of the ARV.
Becuase whenever you're fixing and flipping a house, (I'm going to let you in on a secret)
you're doing it for profit.
And it's risky.
You're going to have to pay for the property to get fixed up.
You're going to have to pay the mortgage while the property is being fixed up.
You're going o have to pay people to fix the property or fix it yourself.
So, there's a lot of things that go into it.
And most people are not going to want to do this for less than a 15% return on investment.
So, that's why we say 30% of the value minus the repairs to make sure that when it's all
said and done after the closing cost, the taxes, the insurance, the carrying cost, things
like that, your fix and flipper --the person that you're going to assign that contract
to, they make their 15% profit.
So, calculating the price for wholesale is not difficult.
Like I said, doing it is pretty easy.
Simple math, simple arithmetic.
No algebra needed.
But you want to make sure that you have all of the information to get the right number.
And so, let's kind of go....
You have everything.
All you have to do is find what properties are selling for in the area.
Pretty easy.
In most cases, you just want to google the neighborhood.
Go on Zillow, for example or Redfin or Realtor.com and in many cases, not all, but in many cases
they'll tell you some of the houses that sold in the area and how much they sold for.
And all you need to do is look through to make sure those homes that sold are similar
to the house that you're talking about.
And now you have a rough idea of what the ARV is.
That's the big thing.
Most people really mess this part up.
"The ARV, how do you figure that out?"
Well, I just told you.
And that's why we're friends.
Well, that wraps up this episode.
Hopefully you totally get exactly how to calculate the price for wholesale properties.
If you need a little bit more information or more training, you can always go to Noellesfreetraining.com
where I teach you this in a little more detail and give you some great information on how
to find those properties and then what to do with them.
So, go ahead.
Go to Noelle's free training to your success.