When I go to make an offer on a property that I am looking to assign to a flipper, I use the following real estate wholesale cheat sheet pricing formula:
Market Value * 70% minus Repair Expenses minus MY Assignment Fee = Offer price
I make my assumptions on what the market value is, what the repair expenses will be (based on my screening), and what my assignment fee (profit) will be. When I arrive, if there are any ‘surprises’ that are not pleasant (nor profitable), I can quickly adjust my offer. The following is my real estate wholesale cheat sheet for making an offer:
Real Estate Wholesale Cheat Sheet | Market Value
Many investors have different ways of determining market value, but I like to think like my end buyers think, and they like price per square foot. When looking at market comparables, or comps, I try to get as close to the property as possible. I will run comps based on subdivision section, 10% square footage, within a 10 year range, same bed / bath, and same number of stories. I will see how many returns that brings me. The furthest out I will run is subdivision (or within .5 miles if no subdivision), 20% deviation in square footage, and plus/minus 15 years on year built. I like to get at least active comps and 5 sold comps in order to determine market value. If you have any questions about the market value of the property, seek assistance from a Realtor.
Real Estate Wholesale Cheat Sheet | Repair Expenses
Screening the call is important for many reasons. One of the reasons is being able to accurately determine the repairs needed to get the property up to market value. I like to use open ended questions when asking about the condition of the property and let people talk. If I feel that someone is not being honest with me, I’ll be direct with them and say the following: “I am writing down what you are telling me and I will bring this list with me to our meeting. If I come all the way out there and find out you’re not being honest, I’m not going to buy your house. In order for me to make the fairest offer, please tell me again, what are the repairs needed in the house?” This line will get sellers to open up about the condition of the property. Again, the expenses part is a very important factor in your formula for making an offer, so you want to have as much information as possible to make the best offer possible.
Real Estate Wholesale Cheat Sheet | Assignment fee
The assignment fee is my favorite calculation because the assignment fee is my profit. One word of caution here: don’t get greedy. In retrospect, you will have spent a couple of hours marketing, analyzing the property value, and inspecting the house. While you deserve to get paid for your time, you’re not risking capital, so make sure the flipper makes a profit on the transaction. My range for an assignment fee for a typical residential real estate property (between $50 – $250k ARV) will be between $2,500 and $10,000. That’s not a bad fee for not risking money or credit. Besides, if the flipper makes a good profit, he or she will be coming back to you for other profitable wholesale transactions in the future. Isn’t that the whole goal of this business?
Real Estate Wholesale Cheat Sheet | Conclusion
In summary, understanding how to make and offer and understanding each component of the offer is key to making a profit in wholesaling. You will want to follow this real estate wholesale cheat sheet to keep flippers coming back to you for more profitable transactions.