ARV & Profit Confusion on a Tax Deed/Wholesale Deal

[Shanai Rogers]

Hello everyone! I am calculating the ARV & profit on a property and would like to know if I am doing this wrong? This example is as if a property was in a tax deed auction & I bid and won for the purposes of wholesaling it & selling it to an investor who plans on flipping it her or himself:

Purchase Price opening bid $3,626.47

winning bid: $10,000.00

ARV $410,700.00

Discount x 70%

___________________________

$287,490

Repairs -$20,000

___________________________

Max Allowable Offer (MAO) $267,490

Profit $257,490

Comparables:

1st: $415,000

2nd: $410,000

3rd: 407,100 

I feel as though I am doing something wrong. I am of course assuming that the winning bid is $10K which most likely won't be that low with an ARV this high but it seems wayyy too good to be true? These are actual number of a property at a tax deed auction coming up but I am using this for a mock analysis to attach to my business plan so If anyone has any pointers please let me know, thank you!

[Bruce Lynn]

Right...I don't think you win at $10,000 on a $400,000 house....way too much competition for that in most places.

Have you been to an auction yet?  That's the first step.  See what others bid.

Not sure where you plan to bid....do you know how the auction works there and if there are any redemption periods?

Are you prepared to pay cash or cashiers checks only the day of sale....so be prepared probably in this case to have cash or cashier's checks for $300,000 or more the day of sale for the $400,000 house.  The typically means no financing.  Check the rules of your location to see what kind of payment they want and how fast they want it.

Then #2...check with your title company to see how fast they will issue title insurance after a sale....do you have to hold a year or two, before you can resale with title insurance or with financing?   If there is, this limits the buyer pool...a lot..

Have you checked to see if it is occupied?  Right now you may or may not be able to evict someone due to the moratorium, so calculate how that works into the plan.

Now with all the negatives, you may be able to rent it and collect rent month to month during any hold period if you get the deed to the property.

Just some things to research and think about....every state is different as to they handle these sales....and the rules and regulations on them.

It's just not as easy and profitable I think in most cases in most parts of the country as your example.