calculating numbers for wholesaling

[Gwendolyn Davis]

I found a forclosured property for 79,900. The houses in the area are selling between 108,00 to 120,00. The house is in very good condition (liveable). I am not sure on how to calculate the numbers to wholesale the property. Can anyone help?

[Kyle B.]

@Gwendolyn Davis, to determine what price to purchase the property for, you need to think about how the investor you are selling the home to is going to make money on the transaction. I will try to illustrate this using the example you provided.

After rehab, the home will sell for $120,000. The investor will need to make minimal repairs (let's estimate $5,000). They will also have to pay closing costs as well as holding costs. These consist of fees paid to the title company when they purchase the property and when they sell it, insurance for the home for the period of time when they own it, utilities for the property, real estate taxes on the property, as well as a realtor fee if they choose to hire one on the sale. Let's say all these holding and closing costs add up to 10% of the sale price ($12,000). Finally, the investor will also need to make a profit on the deal. Let's say the desired profit is $25,000. So, from a sale price of $120,000, we will need to subtract the cost of repairs ($5,000), holding/closing costs ($12,000) and desired profit ($25,000). This gets us to $78,000. Using very basic assumptions, your buyer would need to purchase the property for this price. Keep in mind, I made up all of these assumptions on the fly. You will need to verify them yourself.

Finally, you need to think about what profit you would like to make on the deal. Let's say $5,000. So you should try to get the property under contract for $73,000. Hopefully this example is easy to follow. There are simple formulas that can get you to this number much quicker (ie. ARV x 70% less repairs), but I think it is important to understand the drivers behind it.

I hope this helps.

Kyle