wholesales

[Reginald Dearmon]

I have purchased a list from listsource and I have started sending out yellow letters. I have received MY FIRST call back but the owner said he has $50,000 left on his mortgage. The ARV is 105,000 - 120,000 , can I follow the 70% rule? PLEASE HELP

please give me the info so I can attend. 

[Sean Edgar]

Hi Reginald. Many people teach the 70% rule but it is really a rule of thumb to give you a rough idea of what to shoot for. This also depends on the specific market you are in. In more competitive markets it may be closer to 75%-78%. 

The absolute best way to figure out what you can pay for a particular property is to have a solid idea of what your buyers are looking to pay for something similar. It is very important to have a good understanding of the returns that your buyers are seeking. Some may be looking to make a flat dollar amount, for example 25k or more per flip. Others may be looking for a certain Return on Investment percentage. Get to know your buyers criteria as best as you can. 

Once you know how much your buyers need to make you can determine the ARV then work backwards to subtract out all of the expenses & their return (repairs, closing costs (front & backend), commissions, holding costs, your wholesale fee & the profit your buyer needs). This method is going to allow you to get a more accurate number of the most you can offer rather than using a 70% rule of thumb. You must learn how to estimate these expenses otherwise you may be losing out on deals because your offers are too low.

To answer your question, just based on the low end of your ARV of 105k, 70% would be $73,500. Seller only owes 50k so it looks like there is room in this for a deal to be negotiated (without knowing all of the specifics on repairs and how much the seller would take).