How to evaluate wholesaling rental properties
I have to call a guy back tomorrow about a rental property, but I'm not even sure how I would even bring up what I should offer the guy for a good enough wholesale price to offload easily. I know for vacant, distressed properties it's the 70% rule less repairs and fee, but does this also apply for a 4plex that is being rented?
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Aaron,
I'm new and have yet to do it but if a deal fell in my lap tonight that was a SFH or TH wholesale rental type - the way I'd do it is I'd look at the total rents and make sure they are between 1 and 2% of the MAO (maximum allowable offer - which takes into account whatever $ you want to wholesale it).
Ex - rents in the area are $1200 a month. Less hypothetical $50 TH HOA fee - so " true rent" is $1150.
That puts me at $115000 starting point ($1150 per month rent divided by 1%). Then say the property needs 30K of work . . . .now I'm down to $85,000 and I'm going to go for a 5K wholesale fee so now I'm down to 80K. Notice I haven't factored the 70% rule in there because I think it comes down to knowing your buyer's list. Some can probably close quickly and rehab quickly for a rental . . . I think you need some sort of % in there but you may be able to go to 75% or even 80% . . . it all depends on knowing your end buyers.
So let's say 115000 x 80% = $92,000 less 40K for rehabbing/wholesaling fee puts an MAO offer of 52K for this property.
1) know your end buyer's requirements. If you are going to local rei meetings and reaching out to investors you will start gleaning this knowledge
2) you have to see the property to assess it's condition and come up with a rehab value - there will be some work involved in the turnover even if it's to an end buy-and-hold investor
3) If it's going to definitely be a buy and hold you need to have very good knowledge of the rental rates for that property - then you can apply the 1 - 2% "rule" i mentioned above
Hopefully my reading here on BP has me in the ballpark of decent advice and hopefully someone will correct me if I'm completely wrong!
I've also heard/read - if you are not embarrased with your offer number, then you offered too much.