New investor needs help with numbers - Posted by Kristen

Posted by Rich-CA on August 01, 2007 at 20:27:27:

You really should kep the numbers as conservative as possible. Lots can go wrong during a flip and you need some room just in case. Investors who shave the margin to 15% or less are counting on appreciation for their pay off, or they are doing substandard or non permitted repairs.

New investor needs help with numbers - Posted by Kristen

Posted by Kristen on August 01, 2007 at 19:00:13:

I am new investor starting off wholesaling SFR’s and need clarification on my numbers from anyone who is in a market that has houses still selling for full asking price as well as fixer uppers being sold at or near full value. (I have been searching this whole site and couldn’t find the answer I was looking for).

My market is Seattle, WA and area. My end buyer will be other investors who are going to rehab and sell.

My formula that I use is ARV x .70 - repairs (give or take .20% margin of error) - my profit ($5,000 average) = my maximum buy price.

If deals are being bought by other investors at .85% -.90%, should I be tweaking the .70% by doing my formaula at the .70% - .80% range,? I am just not clear what I should do or if there is a standard formula I should always stick to in this kind of market.

Thank you, I appreciate your time and expertise.


Re: New investor needs help with numbers - Posted by Ben_WA

Posted by Ben_WA on August 03, 2007 at 22:29:20:

Hi Kristen,

I’m a fairly new investor from the Seattle area. I struggled to come up with the “magical” formula for awhile, and it just resulted in “analysis paralysis”. I’ve found by networking with experienced investors that it really depends on a number of factors:

  • Your buyers’ list
  • Market condition
  • Amount of repairs needed
  • Underlying financing being passed on to the end buyer, if any
  • Market value

Some investors that I’ve met will pay 80%, even as much as 85%, of value for a pretty house that they plan on renting or lease/optioning. Others wouldn’t touch a property for more than 70% of value minus repairs - these are mostly rehab properties.
I heard another investor say that you just need to find out what your buyers want and go after it.

(more experienced investors on this board can feel free to correct me where I’ve erred, and I’m sure you will :-))


Re: New investor needs help with numbers - Posted by LK

Posted by LK on August 02, 2007 at 03:47:16:

The formulas you gave work well and sometimes you can bump the 70% up based on the desired profit. Using 70% allows for about a 18%-20% profit. 18% on a $400,000 house is good, but 20% on a $50,000 home is not so good. That is why I always use actual numbers before an actual purchase, then you can check your number against your “rule of thumb” number.

Commissions/holding/closing cost usually runs about 11% in my area and I usually want a 18%-20% profit, so 70% - repairs is very close. It still depends on other factors (the market conditions, do I have too much or not enough inventory, do I already have a buyer, etc)

Re: New investor needs help with numbers - Posted by Bill Jacobsen

Posted by Bill Jacobsen on August 02, 2007 at 01:18:41:

As a rehabber, I don’t use the above formula at all. If I did, it would be closer to (ARV X .80) - repairs. So to sell to me and still make your $5,000 profit you could move your formula up some.

Hope this helps.