Wholesaling Deals For Buy & Hold Situation?

[Kevin Powell]

Hey BP Family!

Question when an investor/buyer wants buy and hold properties, NOT properties to flip, am i still treating it the same as when i wholesale a buy and flip deal? Meaning, ARV * 70%, calculating repairs, etc. Or how would i go about finding those type deals. Because we all know, lots of the mls listings, the owners want as close to asking price as possible.

Please enlighten me if possible. 

Thanks!

[Mitch Messer]

Hi @Kevin Powell. A buy-and-hold investor (i.e. a landlord) looks at deals very differently than a fix-and-flipper. For flippers, the MAO Formula (70% * ARV minus Repairs) is the standard. In contrast, most landlords I know focus on the rate-of-return produced by the property: I'm personally a big fan of cash-on-cash return (COCR), which is just "total cash received" divided by "total cash invested" for the first year.

So, when I look at any potential wholesale (cash) buy-and-hold deal, I first estimate what my landlord/buyer will receive in annual net income (rents minus expenses, which include management fees, property taxes, insurance, maintenance, and vacancy loss). Then I calculate the cash the landlord/buyer will need to obtain and repair the property: purchase price, closing costs, my wholesale fee, repairs. When I divide "cash in" by "cash out" I'm looking for a COCR of at least 10%. That's the least most landlords in my market would accept.

If I can't offer my landlord/buyer at least 10% COCR, then I've either got to reduce my purchase price to the seller or lower my wholesale fee. Otherwise, I don't have a viable buy-and-hold deal.