Wholesaling for Flippers vs Holders

[James Danchus]

BP,

So I ran across something that got me thinking yesterday while making offers. Maybe someone can give me some guidance. 

Let's say that I have a property with an ARV of $100K that needs $25K worth of work. Let's also assume the buyer is flipping this and wants a profit of $20K and I want a $10K assignment fee. My maximum offer should look like this, right?

$100K (ARV)-$25K (rehab cost)-$20K (profit)-$10K (AF)= $45K (max offer)

Ok, my question is what changes about this equation (if anything) if I am not selling to a flipper? Specifically, what happens to the profit? How do I account for buy and hold when I am trying to figure out what my max offer should be?      

[Chris Ramos]

Howdy.

Your analysis for a max offer of $45k doesn't take into consideration the cost to sell the property and potential holding costs which are different for everyone. The key for wholesaling is offering it at a price that someone can profit on so they come back to you, you want multiple people to say yes to your deal immediately. In that price range figure on a 10% cost to sell or $10K = 6% commissions, 3% for seller concessions (possibly 3.5%) this will be a contribution from the seller to the buyer to pay for the buyer's closing costs because most of these buyers barely have enough money to pay their down payment and 1% for the seller's closing costs.  Cost of money, maybe you factor this in for your buyer and maybe you don't. 

Concerning wholesaling to a buyer who is buying on cash flow - they are going to be looking for the best return they can get and this is market sensitive. In the midwest and west coast your in the single digits, back east you can be in the double digits. Not to mention the grade of the area will often affect the return, lower grade typically gives a higher return with more headaches, higher grade typically gives a lower return with less headaches. When offering on properties I would stick with what works for a fix and flip as there are more investors in this arena and then see what kind of an ROI you get on that model. When figuring out the ROI I would stick to the basic set expenses of Taxes, Management fees, City certification and inspection fees and then let the buyer figure out their own variable expenses such as vacancy rates and repairs because each investor will have their own prerequisites. Hope this helps.