I got word yesterday that a buyer is ready to move forward with a property I have under contract. Always great news!! But if I’d followed the typical wholesaler formula that is plastered all over the internet, I probably wouldn’t have this deal.
The typical formula a savvy beginning investor would find out there for wholesaling looks like this:
ARV (After Repair Value) x .60-.70 – Repairs – Your Assignment Fee = MAO (Max Allowable Offer)
Take the neighborhood below, for a typical 3/2/2, following the typical formula:
$110k x .70 – $20k – $5k = $52k MAO
First notice that I didn’t cross a major street for comps. I also stuck to recent comps, no older than a year, putting more emphasis on the most recent ones. So the average ARV is about $110k, and the average investor purchase price is in the $70’s.
Most of these sold comps had pictures or good descriptions of the condition. The ARVs usually had replacement windows, but only basic upgrades; all had new paint and were fresh and clean. Most of the investor comps were in decent condition, only outdated and possibly needing a couple major repairs like a new roof or heating and air units.
Based on this information, an end buyer could pay up to $75-77k for the house. That’s over $20k MORE than my formula told me. So in this case, you could get it under contract for $70k and still flip it for $5k. (Get it under contract for less and make more! But $5k is a good average wholesaler’s fee.)
I’ve been outbid 3 times in the last two weeks and that’s frustrating! But it reminds me to pay closer attention to the comps and hold loosely to my formula – the market determines what we can pay and nothing else.