How to tell if a home is a good wholesale deal

[Maverik Eaton]

Hey! I’m curious about what makes a property a good wholesale investment. Any good article recommendations or advice?

[Barry Pekin]

@Maverik Eaton,

Answering this question is perhaps the easiest thing in the world.  At a very high level, if you find a seller that needs to move quickly and is willing to sell at a deep discount to get what they want, then that's step 1.  Next, is the numbers.  If the property can be purchased at a low enough price that the end buyer can make a profit based on their exist strategy, and so that you can make a reasonable fee assigning the contract, then it's a good deal.  That's step 2.  And step 3 is making sure that the property is one that one of your buyers would want - based on price, location, type, area, etc.

There's a basic formula that works pretty well. First, you need to accurately assess ARV (After Repair Value). This actually isn't too hard. There are a lot of resources online that help with that. Second, you need to relatively accurately assess the repair costs. There are different methods for doing this, but the number is super important. I say that you have to relatively accurately assess repair costs because two people who fix and flip the same property are going to both estimate differently and incur different expenses based on what they do and what their skills are. Also, a flipper is most likely going to spend more on a rehab than a landlord. And finally, you need to account for a reasonable fee for yourself. Once you have these numbers, your maximum offer should be 70% of the ARV less repairs and your fee. I've seen other formulas that break it down further, but you don't need to do that. They 70% should be a good buffer. Talk to your buyers and ask them what they're looking for.

The biggest mistake I hear wholesalers making is that they find an opportunity where the seller won't sell low enough for those numbers to work, or the wholesaler is trying to make so much that they're taking away from what the buyer needs in order to make it work. First, don't over-estimate your ARV just to make it work. Statements like, "but it could be easily sold for $10k more than the ARV" isn't going to fly. Second, don't under-estimate repairs. Statements like, "it barely needs any work" when you don't know also isn't going to fly. Buyers' biggest complaints is when it comes to over-estimating ARV and under-estimating repairs.

I think it's important to get to know the buyers in your area.  The biggest difference in buyers' numbers is in landlords vs. rehabbers.  But even then, there are going to be variations beyond that.  I've met rehabbers who strictly stick to the 70% rule.  I've met others who say they are willing to go as high as 85%.

Know your buyers' criteria and don't fudge the numbers to force a deal.