What % Forced Appreciation Are Investors Looking For in Indy?

Question

Good afternoon Everyone,

Happy Investing! I am a new wholesaler in the Indianapolis market trying to determine what percentage to use for the wholesale formula so I can provide the most efficient MAO. I learned investors are generally looking for 25-30% forced appreciation on a rehab but that number differs between markets. What is that percentage in the Indianapolis market currently? Thanks for the help in advance!

Jesse LeBlanc · Answer

@Ashley Robinson IGNORE everything except what your buyers will buy it at. It DOES NOT matter what anyone else on here tells you, because at the end of the day YOUR BUYER will be the final decision maker on a deal you bring them. And with so many different buyers out there and they each have their own criteria and one person flips, the next person is STR (Airbnb with different buy criteria) then you have HedgeFunds with wildly different buy criteria including OVERPAYING, but they have goals and metrics to meet that won't be like your typical investor.

Meaning find SOLID buyers to sell deals to. Find out what their criteria is as far as bed/bath, sqft, year, area etc. Then locate those for them. Provide them with walkthrough pictures and or bring them to the house. From there, they can tell you what they would pay for the house.

From there, your ONLY job is to go to the seller and get it below that price. And you can almost always talk the seller up a tad too if things are tight. Then you keep the spread. Your seller will be happy, your buyer will be happy and you will have a nice spread and a new relationship with a buyer who will respect and appreciate you. Then you just rinse and repeat while finding other buyers.

As wholesaler, especially one who has not had the experience in flipping, rehabbing, rentals etc, DON'T BOTHER TRYING TO LEARN in order to make a deal happen. Overtime you will naturally learn from your buyers and also learn the market better. Soon you won't even have to get your buyers price first, you'll have enough experience with each buyer to know what they will probably pay, then you can get things under contract before informing them, thus having more confidence AND never pissing off sellers by having to backout and not perform and not keeping your word to them.

Account Closed · Answer

This should depend deal to deal. Pretend that it's you who's actually going to buy this deal when you're wholesaling. Would you take only a 10-15% return on your investment on a property that hardly needs any work done to it? Yeah! Would you take the same return on a property that needs a new roof, floors, drywall, foundation issues, etc. Probably not.

You also have to play your ARV really safe. There's only one place where you shouldn't be optimistic, and that's when evaluating repairs and resell values. You should actually be negative, take the average of your comps and go with a lower number, assume the repairs are more than you think, and this will enable you to apply these formulas properly and make your end buyers money.

Here's my company's formula for deals:

Properties that need no/light cosmetic work: 75% arv - repairs - your fee. This enables a higher price to the seller, enables an easy return for the investor. They can come in, clean it up, or just repaint a little bit, and sell it for a ~25% roi before closing costs. About 15-20% after. That is if they're going to sell it, of course. They could buy it at that price, refi 80% out of it and basically pick up a free cash-flowing rental. Sure, it's entirely possible to get the deal for less to make more money, but you'll lose deals doing this just for trying to take a little more equity and putting it in your pocket.

Example of the one above: $100,000 ARV home that needs $2000 in cleaning up. I would say offer $70,000, try to make $3000 on the deal, $2000 in repairs, sell it for $75,000 to the buyer. They'll put $2000 in, pay $73,000 for the house, sell it for $100,000. They'll make $27,000, and then pay ~$8,000 in closing costs. 19% ROI for hardly any work, but a little time, assuming they're cash.

For a medium-high work job, I'd go for 70% arv - repairs - your fee.

$100k arv house that needs $20k in work, I would offer $45,000. I would wholesale it for $48,000-$50,000, the investor comes in with $70,000 and will sell it for $92,000 after closing costs, or about a 31% roi.

I will say though, if you pick up a property on a REALLY good deal, lets say $100k arv, $10k in work, but you have it for $35,000, I wouldn't try to squeeze all of the equity for yourself. I would say you should go up to a 50% roi for an investor. To find this, so you can reasonably assign your huge deals (of course, I would recommend double closing if you do want to squeeze the equity for yourself. Then they won't see that you're making more money than them on the deal, but I think the investor deserves to earn more, personally.)

x = Purchase Price

y = Your Assignment Fee

z = Investor profits = ARV - x - repairs -.08(ARV) - y

z = 1.5[x - repairs - .08(ARV) - y] for a 50% ROI

This formula will enable you to give large returns to your investors for home-runs while reasonably capping it at 50%, for a larger assignment fee. For example,

$100,000 ARV $12,000 repairs $35,000 purchase price $8,000 closing costs:

At that, with a $0 assignment fee they would make a 82% roi. Well, now that you have the roi for a $0 assignment fee, you can subtract 50% from 82% to get 32%, which you can then multiply by .5 (because you want it to be a 50% roi for them) for their initial investment for your fee. $55,000 x .32 x .5 = ~$9,000

You can check this by taking what they spent vs what they will sell the house for. This means you'll make $9,000, they'll make a 50% roi on their money. I only offered this solution because some investors will care how much money you're making, for whatever reason.

Louis Jeffries · Answer

@Ashley Robinson Investors should not touch a deal if it is less than 70% ARV (30%). That said may do but there are many reasons why the shouldn't. From a financing point of view, with 70% ARV or they can always refinance and get there money back (BRRRR)

At 70% ARV and investor can refinance when the property is not selling fast enough.

At 70% ARV there is room for lower sales price than anticipate, higher rehab costs than anticipated, longer hold time than anticipated.

Higher than 70% ARV is always a great risk!!!

That said - there are people who go higher, but they shouldn't.

If you want repeat business keep your deals with at least 30% equity.

Ashley Robinson · Answer

@Louis Jeffries  I recently connected with an Indy broker/investor who indicated 15-20% in the current climate because of high demand. Thank you for your response and the clarity!

Kerry Noble Jr · Answer

use the normal 70%......

What % Forced Appreciation Are Investors Looking For in Indy?

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