WHOLESALING ARV TOOL GENERATOR

[Luis Raymondi]

HI, NEEBIE HERE , I WANTED TO KNOW WHY THE BIGGER POCKETS WHOLESALE TOOL IS DIFFERENT FROM MY SOURCE(JERRY NORTON)? JERRY USES THIS FORMULA ARV*.70-REHAB-WHOLESALE FEE=X WHICH GIVES ME A BETTER COMP TO OFFER A DISTRESSED PROPERTY? FOR EXAMPLE USING THIS FORMULA I HAVE A PROPERTY I AM LOOKING INTO $278040*.70-50K-40K=$104,628 OFFER TO SELLER. NOW USING BIGGERPOCKETS WHOLESALE I GET AN ALLOWABLE OFFER OF $174,400???? BIG DIFFERENCE ANY HELP WOULD BE GREATLY APPRECIA.TED

[Steven S.]

Quote from @Luis Raymondi:

HI, NEEBIE HERE , I WANTED TO KNOW WHY THE BIGGER POCKETS WHOLESALE TOOL IS DIFFERENT FROM MY SOURCE(JERRY NORTON)? JERRY USES THIS FORMULA ARV*.70-REHAB-WHOLESALE FEE=X WHICH GIVES ME A BETTER COMP TO OFFER A DISTRESSED PROPERTY? FOR EXAMPLE USING THIS FORMULA I HAVE A PROPERTY I AM LOOKING INTO $278040*.70-50K-40K=$104,628 OFFER TO SELLER. NOW USING BIGGERPOCKETS WHOLESALE I GET AN ALLOWABLE OFFER OF $174,400???? BIG DIFFERENCE ANY HELP WOULD BE GREATLY APPRECIA.TED

Hi Luis, I'm not a wholesaler but I'm basically a robot who talks in numbers and you got a lot in there. Also your caps-lock key is on.

Wholesaling is all about knowing ARV, you have to know what this thing will be worth once fully built-out/renovated, because with that, you know what Mr Developer will sell it for.

Your 0.7x the ARV is estimating what this developer will pay for the property (and tells me this will be a very simple fix & flip with no major construction, not much room there for Mr Developer to run into unexpected issues, or you are subtracting the construction costs later). I know this because I buy fix & flips for ~60-65% of the ARV and do the full rehab, 70% would be tight (sold these flips last month: https://www.redfin.com/CA/West..., https://www.redfin.com/CA/Los-... )

Developers are usually hungry to make ~20%+ profit on a 6 month flip. So if you are able to estimate the ARV, and then the total construction, carry, and sale-side costs (5%) for the finished project, you can then figure out how much Mr Investor would pay for this project, the rest should be your wholesale fee (20% developer profit offer price - seller asking price = wholesale fee). This approach gives you the ability to charge your highest possible wholesale fee, since you know what a developer would pay for this to fix and flip it and make their 20%.

Your $104,628 offer to seller with your wholesale fee of $40k means the flipper pays $144,628 for a house, that after a reno will sell for $278,040. You left money on the table for sure, or gave it to the developer rather because they bought at 52% of the ARV.

Your $174,400 offer to seller with your wholesale fee of $40k means the flipper pays $214,400 for a house, that after a reno will sell for $278,040, might be too high for a developer to be interested (definitely below 20% profit after the reno, carry, and selling costs, if not upside-down) because they bought at 77% of the ARV.

That's how I would rationalize it, and get the most out of every seller you lock-up with. Keep in mind I'm out in the LA/Ventura area, adjust your developer profit % margin for what is regular out in your market, then apply the same process.