How much profit in a deal? [Edit]

[John Thein]

Hello,
I was trying to come up with a clever headline....oh well. Anyway, I have a possible wholesale deal that appraised for $148k, needs $18k in work. Most rehabbers in my area would be happy with a $20k profit. If I market it to my buyers list for $93k, that leaves $55k to do repairs, closing costs, realtor, misc, etc. Does that seem about right to all the rehabbers out there?
Thanks

John

[Steve Babiak]

Originally posted by Richard Warren:

... Here’s how a professional rehabber would look at that deal:

(ARV – repairs) x 70% = Maximum Purchase Price

ARV = after repair value. That is what it can actually be sold for quickly. That is probably less than your appraised value. For this example we’ll use the appraised value as the ARV and assume that your repair figure is accurate (though you don’t indicate how you arrived at that amount).

($148,000 - $18,000) x 70% = Maximum Price
$130,000 x 70% = Max Price
Maximum Price = $91,000

That 70% number is not a given. If the market in your area is weak or repairs are expected to take a long time that number needs to be lower. If the buyer is using cash the number could be higher because of reduced holding costs. Personally, my number would be more like 60% in my market even though I am usually a cash buyer.

...

Richard, you have a mistake in your equation. The way you have it written, you are only taking off 70% of the cost of repairs, and real rehabbers don't do that :wink:

(ARV x 0.7) - repairs = max price to pay

0.7 adjusts depending on market, like Richard explained.

For the example numbers given by Richard above, the max price that the rehabber buyer should pay is $85,600.