Newbie and some seasoned real estate investors have a tendency to forget to calculate certain expenses into their offers. In many cases, this mistake will be a very costly one that could turn a real estate deal from pofitable to financially detrimental. Most property finders and real estate bird dogs are the most likely ones to forget to include some of these factors in their calculations, because they are not going to be the ones who will close the deals.
If you are doing wholesale real estate deals where you are going to sell the information about a deal (bird dog), assign a contract you negotiated, or do a simultaneous closing, you will want to use a wholesale offer formula to calculate the nuber for each of these deals. The wholesale offer formula consists of the following:
- Determining current fair market value for target property
- subtract all rehab and repair costs
- subtract closing costs
- subtract holding costs
- subtract cost to borrow money
- subtract real estate commission (if applicable)
- subtract bird dog or assignment fee
- subtract cash buyers profit
You will find the result will be the maximum amount you can offer on that wholesale real estate deal. You will need to submit and offer for less than this amount, so you can have room for negotiation. It is a formula that takes into consideration all the expenses that any real estate investor will incur with doing this particular wholesale real estate deal. It will help any property finder, real estate bird dog, and wholesaler make sure that they have a deal that is attractive to cash buyers and other real estate investors. It is the best way to make sure you are able to consistently negotiating profitable deals for you and your end buyers.
Keep in mind, if you run the numbers this way, you are best to pass these deals onto your rehabbers. If you are looking to pass deals onto landlords, you will want to run the numbers in a different way.