Buying a Property We Expect to Sell to Another Investor

Real Estate Agent with Real Estate II

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.

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Comments (3)

Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

Thanks for sharing your ideas. i love the 65% idea, it allows for more "if's" that always seem to pop up.

Jan 17, 2011 01:18 AM
Joe Kenny
Realty Executive Midwest - Darien, IL
Better Than Your Average Joe

Thank you for this, I sometimes struggle with this exact thing.

Jan 17, 2011 01:32 AM
Marsha Montoya Mayer
Paradise Properties of Florida, Inc. - Palm Beach, FL

Chris, Thank you very much for sharing your formulas. HOW MANY OF THESE HAVE YOU DONE SUCCESSFULLY IN THE LAST 2 YEARS?



Apr 02, 2011 04:33 AM