looking to buy wholesale and do rehab but numbers inflated

[Strat V.]

My colleague, who is also a real estate agent called me up to assess a property that another investor wants to wholesale to us. Here is the scenario. The investors that want to wholesale the deal to us are asking 79K. AVR is 180k. Repairs 55k. They claim that is a potential 57k profit. I used this formula to check the math. 180x.70avr=126-55 (repairs) to get a MAO of 71k. Potential profit 54k,not 57K. That is assuming their comps were good and the repair estimates were good, they are not.

My colleague who is a real estate agent pulled sold comps, pending comps under contract and active listings comps. We both agreed that AVR is 140k, that is what he would list it for fixed up. The property is 3 bedroom, 1.5 bath and 1332 sq feet, and our comps reflect this. We assessed the property repairs to be 69,300 including 12k for mold removal. I am not comfortable using .70avr and other investors have used .65avr. So, 140k AVR x.65=91000-69300 giving a MAO of 21,700, profit 49K. or calculated , 140k AVR x.70=98000-69300 giving a MAO of 28,700, profit 42k. Is this still a good deal using our corrected numbers? Also, if they did agree to our MAO, how do we calculate total holding costs and how long should a rehab take? Lastly, how can we find funding? Thanks.

PS, the property sold in 2000 for 41k, public record. Is there a way I can find out what these other investors that want to wholesale it to us bought it for? Or is that not important if the numbers work?

[J Scott]

The potential profit in the scenario you first presented is NOT $54K. Even if you assume:

ARV: $180K
Purchase: $79K
Rehab: $55K

You need to account for all your fixed costs (loan costs, closing costs, commissions, holding costs, concessions, etc). If you're paying cash (no loan costs), you can probably expect these costs to be about 10% of the sale price, or about $18K.

So, you're profit potential is:

Profit = ARV - Purchase - Rehab - Fixed Costs
Profit = $180K - $79K - $55K - $18K
Profit = $28K

Of course, if the ARV is lower and/or the rehab costs are higher (or if you have higher fixed costs for some reason), your profit potential is lower.