Buying a Property We Expect to Sell to Another Investor
My last couple of posts have concerned valuing property for both ‘buy and hold' and to ‘flip' to a retail purchaser. Sometimes we have the opportunity to buy a property we can sell to another investor, or ‘wholesale'.
Our current formula for this transaction is simple and straight forward:
ARV (After Repaired Value) X .65 - $12,000 - Cost to Repair = MAO (Maximum Allowable Offer)
We aim for a $12,000 profit on a wholesale purchase. This is an arbitrary figure and a goal number. Obviously a quick transaction may yield less than $12,000 and be worthwhile. A great wholesale deal is when we make a fair and quick profit, but are able to leave enough on the table for the new buyer to profit as well.
In our experience most investors consider potential equity of 30% to be a good deal. To hedge our bets, or more accurately to increase our margin for error, we use 65% in our calculations. This formula allows us room to profitably rehab the house if it turns out we cannot sell it to another investor within 45 days.
Again - all arbitrary, but having a model you can carry around in your head provides a structure to use when evaluating multiple properties quickly.
For more, visit us at www.TheMcAllisterTeam.com.
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