[Rent Rate] x 35: Anatomy of Wholesale Offer for Buy and Hold Investment?

[Jonathan Baker]

Hello all,

Newbie question here. I understand that a typical wholesale deal to a fix and flip investor you're looking at % of ARV - repairs for a wholesale price to an all cash investor.

The rules seem to change a bit when you're considering rental rates. I was told by a buyer that they are looking for properties in specific areas that are 35x rental rates. So I pulled up Zillow, and checked the stats for target area:

Median Home Value: $150,000.00

Median Rental Rate: $870.00

WHAT?! So $870.00 x 35 = $30,450 wholesale price. I have to net out an assignment fee onto of that. Under a typical equation it would be more like $150,000.00 x .70 - repairs which would put us around 90k. Much more "purchasing" power when dealing with the seller.

So how exactly do these deals work?

Thanks,

Jonathan.

[Chris Martin]

At $150K purchase and $870/month I would be bankrupt. You must know what works in your local area and clearly that 35x thing doesn't work in your target area. I'd recommend that you verify that your buyer has actually bought a property. And then find out what X times they paid... and see if it is 35 or a lot more.