ARV practice test 2:, what am I doing wrong?

Question

Ever since I started learning multiplication, division, fractions, etc. in school growing up I've had many, many problems with math. To the point where I just hated it because my brain could never process it when it started to get more detailed leading to the mind working more on solving the answer. I even was diagnosed with a learning disability in math, despite that I believe with patience and step by step process that I will understand whatever math formula that's needed for any task, it might take a little while to get it but it will come through. This ARV formula I'm still working on getting down right and need some more help from you guys on what I'm doing wrong and or missing with the whole thing. Below I have an example of a deal that I would wholesale to a rehabber, It's not a real deal just a sample I put together to see if I got this right or am close. Please tell me what am I missing here?

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Ask: 285k

3bdrm, 2half bath

2 car garage

No mortgage

No H.O.A

A.R.V = $310k - $331k

( $25k spread)

$310k x .70% = $217k

( $93k spread)

- $ 65,100 (30% repairs)

- $ 32,550 (15% closing)

- $21,700 (10% profit)

= $97,650 (max offer)

( $212,350 spread)

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I figure that since me and a rehabber are going to be involved in helping a seller by buying their property, that my profit will be mixed in with the rehabbers and in order for me to make a profit I have to make sure the rehabber makes a bigger profit. I'm not sure where the rehabbers profit is at in this sample LOL! and since this probably looks insulting to a seller to ask for their property at that low of price. I think the only type of properties where my low ball offer would work for such a high valued property would be foreclosures, but I don't have what I need to do those, or do I, does any of this work or make sense?

Chaz Reid · Answer

70% rule is 70% of your ARV minus rehab and your fee. As a wholesalers, you don't worry about closing cost, that's for the buyer. So with your example your format should look like this... ARV (AVERAGE retail value) = $320,000 that's a middle point from using your range you provided. Repairs (Not too sure what the 30% came from but I'll use your number) = $65,100Your fee ( not sure where the 10% came from but I'll use your number) = $21,700So now that you have your numbers and your numbers only, time to make a formula...(ARVx70%)-R-F=Max Offer($320,000x70%) - $65,100 - $21,700 = $137,200 will be the most you can offer in order to keep your spread. My pointers or suggestions for you, is set a amount you would like to make on your deals. Don't necessarily use a percentage, especially in the beginning of your journey. Figure out how to make deals happen and what they look like before you start thinking about taking a set percentage per deal. Now with your example, I think you might get thrown off because you include a lot of unneeded information. Your offer has nothing to do with HOA, beds, bath, etc. You are only worried about comps, repair cost, and your profit you desire. The rest is for the investor to worry about. Closing cost, holding cost, taxes, whatever, that's none of your worries. If you can get someone under contract using the 70% rule, you'll find a buyer normally. But just because it says its the "rule" doesn't mean you HAVE to follow this in order to get a deal. My final thought, stop bashing yourself when it comes to math. Speak positivity into your life and mind. If you're constantly saying, I can't do this or that, you never will. But its once you start claiming it, it will start making sense. Feel free to reach out to me on my personal email or up here BP anytime you need some help. :-)

Chaz Reid · Answer

Kind of but not quite, send me a email so I can help you out.

Octavia D. · Answer

________________________Thanks chaz, the %'s are guesses on how much it might cost the buyer for closing, repairs, etc. based on the high price of the home. How come I should not worry about the buy, sell, hold, and fix costs the rehabber (buyer) will be paying for, isn't my profit determined by theirs and don't I have to make sure that there's a good spread for them as well.? also i wasn't putting myself down when i mentioned my learning disability, i was mainly just confiding to those who read this post that if some have math flaws that they as well as me will figure it out. So would my formula (knowing I should not base my deals heavily on this) look like this:Ask: $285kARV: $310 - $331K$320k x .70% = $224k$224k - $65,100 (repairs) = $159k (max offer)$159k - $21,700 (profit) = $137,300 (flex offer)

David Daniels · Answer

hey Octavia Sorry I miss the part you said you were going to wholesale to a rehabber, in that case..you take that max offer (151k) and subtract 10k,9k,or 8k (which is the wholesale profit)from it .so your offer as a wholesaler should be 141k-143k...whatever spread you aim forexample for wholesale151k-10k=141k

David Daniels · Answer

Your max offer formula should look like thisMax offer = ARV x 0.70 - estimate repairs <-----------so your ARV is 310k multiply that by the rule of thumb 0.70 and you got 217k. Now if your estimate repair is 65,100 (I would just round it up to next thousand to be on the safe side) so I would go with 66kso 217k subtract 66k should be 151k...your max offer you should be 151k.<----------So your potential profit you could make on this deal if you don't go over budget and sell it at top ARV is 310k-217k =93kI think your closing cost is little bit to high, but then again I never done a deal yet. So I might be missing thing....But remember that formula

K.D Neider · Answer

http://www.biggerpockets.com/real-estate-investing/educationChapter 2, explains this really easily.