In most markets around the country today, we are in a seller’s market. The strategy I’m about to share with you applies whenever we are in this kind of a market because it becomes harder for investors to find deals.
It’s easier to sell right now because there’s a lot of demand for properties, causing prices to go up and homes to sell very quickly. When this is the case, investors start to overpay when they buy. Rather than working harder to get deals, what investors do in a seller’s market is that they go out of formula and start overpaying for properties.
So, as a wholesaler, if you get a good deal while still in formula, you can wholesale that deal to other investors for more than you’ve ever been able to do! It’s crazy! Let me explain in detail how this all works.
When wholesaling, it is always important to go by the 65% formula. This is the formula that I teach, and the one that I use every single time I do a wholesale deal myself. It is as follows:
ARV (after repair value) x .65 (65% formula) – repairs = buy price
So, we basically take out 35% of our ARV (after repair value) to cover profit, closing costs, and carrying costs. Then, we subtract whatever amount the repairs will cost in order to come up with our buy price for a property. This is the formula you should always be following, for every single potential deal. It allows for a 20% profit going into a deal, which is the margin that you should be at. Let’s look at a deal on a property with a $200,00 ARV that will be needing $30,000 in repairs. So, if we run our formula we get the following:
$200,000 x .65 – $30,000 = $100,000
In order to be at our 65% formula, this property would have to be purchased for $100,000.
Now, let’s take a look at what a typical investor in today’s market would pay, using a 75% formula for this property:
$200,000 x .75 – $30,000 = $120,000
In a seller’s market like the one we are in today, it is very common for investors to buy at 75% less repairs. Based on the above examples, if you stick to the 65% formula, you’d be getting a deal for $100,000 that an investor would easily pay $120,000 for. This means that you could wholesale your deal, and make a $20,000 wholesale fee!
This is why you should be wholesaling in today’s market. The difference between you and an investor should be that you never come out of your 65% formula. Just because everyone else is coming out of formula and paying 75% less repairs, it doesn’t mean you should do the same.
Instead, you need to focus on getting better at finding deals, improving your marketing, and making more offers. Personally, I don’t budge from the 65% formula, because I know that when I get a good deal with these numbers, I can wholesale it to an investor whose coming in at 75% and easily lock in a $20K wholesaling fee. Years ago, a good wholesale fee was around $5,000, but in our current market, properties can be wholesaled for $20-30K. Just stick with the formula!
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