Pricing a wholesale deal ?

Question

I have a quick question, kinda feeling like a homer asking this too. 
            
            But lets say I purchase a house with an ARV of 100k and i want to wholesale it. 
            
            so ARV 100k 
            70 percent 70k
            Closing and Atty fees 6750
            Wholesale profit 5k
            Repair cost 10k
            
            so my maximum offer would be $48250
            
            Lets say i pay the atty and closing cost out of my own pocket does that mean i add it to the sales price when i sell the property ? 
            
            $48250 plus 
            5k wholesale profit plus 
            $6750 equals
            
            60k sales price ?

Ryan Webber · Answer

And that's an excellent point Todd.  Each market is different and the basic 70% formula has to be adjusted to your market.

See the following thread for more info:

http://www.biggerpockets.com/forums/93/topics/25617-wholesales-offer-price-to-a-seller

Now Todd are the HML's in your area factoring in repairs into their 60% to 65% of ARV?  Because 70% of ARV minus repairs is probably going to be around 60% anyway.

Each Hard Money Lender is different, though, and obviously learning what HML's in your area are doing is essential.

Todd Hutcheson · Answer

Not sure where you are located, but the 30% discount is not good enough in my area, Orlando, to wholesale any longer.

The experienced investors are wanting a larger discount, usually 35 to 40%.

I pay all closing costs in my contract with the seller and assign my contract, so the end buyer always pays the closing costs.

The other reason it is no longer valid is the hard money lenders are not lending that amount any longer. Most of them are lending 60 to 65% and want money down.

Loc Nguyen · Answer

Oh so when i buy a property at wholesale the closing cost gets included in the loan leaving only the attorney fees.

Thanks man.

Ryan Webber · Answer

The 70% minus repairs formula includes estimates of closing costs and loan interest costs for the rehabber.  Typically you are looking at 15-20% of the 30% markdown to go towards profit.  The other 10-15% goes towards resell costs, closing costs, and holding costs.

Loc Nguyen · Answer

So what would you sell the deal for if your target profit was 5k and you acquired the property for 48250 ?

Curt Davis · Answer

Loc,  Here is how I would structure this property for my client. Keep in mind, I structure my deals for my clients with no money out of pocket.

ARV $100,000
70% 70,000
-$1,000 closing attorney fee
-$10,000 rehab
-$3,500 hard money interest
------------------------
$55,500 should be your sale price
$48,250  your price
-----------------
$7,250 Your profit, you will need to deduct about $1,000 for your own closing attorney fees.  Now your client will refinance the property at 75% and the closing fees on the back end will be included into the refi. Hope this helps.

James Hiddle · Answer

If you are going to pay the atty and closing fees than you don't need to add that to your MAO since you only add that if your end buyer is paying that.