Posted by Bill (OH) on February 12, 2000 at 04:44:21:
The general rule of thumb is 50%-----in other words, the property should be purchased for no more than 50% of its market value. Wholesaling involves finding and selling to other investors the dogs of the real estate market. A lot of times these properties are real ugly and require a lot of work. When you get into a property that requires a lot of work you wind up with a lot of unknowns----unknowns that can cost you money.
Let me give you an example of a project I’ve got going right now. It’s a three family that was foreclosed on by a bank, and that sat vacant for about a year. Three years ago the property sold for $54,000-----and that wasn’t in good shape. In good shape the property is worth about $70,000 dollars. I bought it from the bank for nothing down at $27,000–giving myself a big cushion for hidden costs.
I estimated $10,000 in fix up costs. However, I had a feeling that the actual amount would be higher----one thing to watch for is the time of year that you buy property. I bought this one in dry weather with no real way to tell where all of the leaks in the roof might be. Well, to make a long story short, the roof was worse than I thought and there were more repairs and holding costs than I had predicted. The final repair cost will be closer to $15,000 and I will then refinance the property and take out $15,000 in cash.
Bottom line---------aim for the 50% figure…and good luck!