Wholesaling Real Estate is one of the fastest ways to bring in income as a Real Estate Investor.

 

In this post, I’m going to give you my proven formula for buying wholesaling deals. My formula is so stupid simple that it will just take some basic math and you will know the top dollar that you can offer on any wholesale deal throughout the entire country.

If you’re unfamiliar with what wholesaling is, here's the definition…

 

Wholesaling Real Estate is the process of finding a discounted property, putting that property under contract, you then market that contract for sale at a higher price.

 

When you find your buyer that wants to buy your contract, you assign your rights using an assignment of contract, and you get paid a fee for doing so.

 

For example:

• You find a seller who wants to sell their property for $100,000 (It’s after repair value is $210,000)
• You put the property under contract for $100,000
• You market and find a buyer for your contract at $110,000
  You make the difference of what you bought and sold the contract for

The numbers:

$110,000 - $100,000 = $10,000 (your wholesale fee)

 

You didn’t buy a house as you didn’t own it. You simply found a great deal and flipped your contract to someone who is going to fulfill on it and take it all the way to the closing table. They paid you to enter into the contract that you entered into!

 

It’s pretty cool but you better do it properly and legally!

 

There are actually 2 different ways to wholesale real estate.

 

Here’s how I calculate my max wholesale formula:

 

Step 1: Calculate the after repair value (ARV)

 

This is the core of the system and the number that you have to get right. The quick and dirty way to do this is to go to www.Zillow.com, www.Realtor.com, www.Redfin.com, and see what they say the property is worth all fixed up. This would be Zillow’s “Zestimate” and Realtor.com and Redfin’s estimated value. Just all those numbers up and divide it by 3 to get the average.

 

Example:
123 Main St. in  Anywhere, United States

• Zillow’s Zestimate is $100,000
• Realtor.com’s estimate is $105,000
• Redfin has the value at $108,000

Add all 3 of those numbers up to a total of  $313,000 then just divide by 3 to get your average so your ARV would be $104K

 

Step 2: The MAX Wholesale formula

 

Now that you have your ARV it’s just basic math.

The formula is ARV X .5 - $5,000 = MAX OFFER

ARV = the after repair value
.5 = 50% of the ARV
$5,000 = your wholesale profit

Now let me address the big elephant in the room…

 

BUT WHAT ABOUT THE REPAIRS?

 

This formula already calculates the repairs on the deal.

 

• Most homes will need 20-25% of the ARV in repairs
• Most buyers of wholesale deals need to make a 25% profit to make the deal work for them
• You sell your wholesale at 50% of the ARV

This is how you put a real wholesale deal under contract and not be the joke of all real estate investors by overinflating ARV’s and saying the property only needs 10K in repairs when it clearly needs over 50K on your wholesale deals.

 

The numbers again…

 

ARV = the after repair value
.5 = 50% of ARV (25% for repairs and 25% profit for the buyer)
$5,000 = your wholesale profit

You can tweak your profit if you want but this is what we use in our business.

 

I do suggest that if you live in an area (or doing a deal in an area) where the median price point is above $250,000 that you adjust your .5 to .6 so the deal will make sense. You should also adjust your profit in these areas to around 15K.

 

Example:

The median is above 250K then the formula should be…

 

ARV X .6 - $15,000 = MAX buying price

 

This formula works and is stupid easy to implement in your business. It’s just simple math and I highly recommend you to start using it.

Once you know you have a deal or a potential deal then that's when you want to start pulling MLS comps and really breaking out the pencil to determine your final offer on the wholesale deal.