Factoring Cost of Money in Offer Price

[Jason Hatfield]

Quick question for all you Wholsalers.  When you are determining an offer price are you subtracting the average costs of hard money?

Example:

ARV is $100K

Max Financable is 65% or $65K

Repairs are $20K

Are you then simply offering $45K or are you further subtracting for things like cost of money, closing costs, holding cost, resale costs, etc

Thanks

[Mary B.]

Originally posted by @Jason Hatfield:

Quick question for all you Wholsalers.  When you are determining an offer price are you subtracting the average costs of hard money?

Example:

ARV is $100K

Max Financable is 65% or $65K

Repairs are $20K

Are you then simply offering $45K or are you further subtracting for things like cost of money, closing costs, holding cost, resale costs, etc

Thanks

To answer you firmly that would be no for adding HML fees, insurance fees, resale costs & miscellaneous expenses to the MAO/MOA. Truth be told those expenses the endbuyer has to 'eat' themselves. That's why they get the bigger profit(more risk, more reward).  Rehab costs(which are included in the MAO calculation of each wholesale pitch) are a guestimate at best even coming from lic'd & bonded contractors. Often there are additional rehab costs experienced GC missed. There is no possible way to know how the fix and flip investor plans to market the property after its done so holding costs might be guestimated at a 3 to 6 months timeframe for some yet it may take longer. Its a difference if the wholesalers end buyer is a cash closer or if they need to be financed. That's why its important to state(conversed between wholesaler and their buyer(s)) how they intend to close for contingency purposes to start. Plans change and it can go from a fix(fully) and flip  to fix(slightly) and flip or to a lease/option or full on rental property - the last two, its being held for longer so they will have to refi out if they got a PML/HML. 

Most rehabbers yell out cash as their way of closing primarily because cash is king and it gets the best attention from wholesalers, owners and agents to bring them leads . I ask that all my buyers state up front if they are getting financed or actually have cash (firmly requesting verifiable proof of funds a.s.a.p.). Its saves all of us(owner, endbuyer, settlement ofcr and me) time. My coin.

Kudos,

Mary