You can estimate the market value of a property based on comps and, if you have experience with rehabs, how much it would sell for. But what if you’re conversing with the seller and they refuse to give you a number? What are the factors you need to consider before making an offer?
In this episode, Brent Daniels will share his formula for calculating an offer price, taking at least 3 different price ranges into account. He will share an example so that you, too, can make an offer that property owners will go for and that you can profit from.
How To Make A Quick Offer On A Wholesale Deal
Here’s the quick offer for properties that are $250,000 or above. You’re calling and you press that Zillow button on your dialer. You’re having a conversation with the property owner and you Google the address as you’re talking to them as you should, so that you can have a good and clear conversation about their actual property, the size of it, what it looks like, the age of it, those types of things and the repairs that it needs.
When you’re looking at Zillow and it’s $250,000 or above, I want you to use 66%. Times that number by .66. This is easy. We’re going to get more nitty-gritty and more in the weeds on this but this is a good jumping-off point, especially if people are pushing you, “Give me your price.” They’re not giving up anything. You’re asking them what they think their property’s worth, how much repairs do they think it needs and all of those things. They’re not giving it to you and still got that force field up. It’s still really thick. They’re not playing along and answering the questions.
You can throw out 66%. This is going to get you close to what the price is going to be. If it’s under $250,000 to $100,000, I want you to throw out 50% of that Zillow price. This is taking into account all the other factors that I’m going to share to you. From $250,000 to $100,000, it’s 50%. If it’s $100,000 and below, it’s 25% and maybe 30% but I want to keep it at 25% because I like you anchoring low to see what the opportunity is there.
Here’s a quick offer. This is for properties that are under $200,000. I’m going to have you get your calculator out so that we can do this quickly. This is the calculation. There are four steps to the first part to get what you are going to sell your deal at if you’re doing a traditional wholesale transaction or a wholesale deal. These four things are the things that you need to focus on.
There’s the ARV. What is the value of that property? You’ve run comps and got a pretty good idea of what fixed up. It’s totally beautiful what that property sells for. Let’s say that this property goes for $150,000. I’m doing this as an example. The closing cost is 6%. That’s going to stay fixed. This is for real estate agent fees, the title and escrow fees, closing attorney fees, title insurance and all of the closing costs associated.
These are what your cash buyer is going to be looking at. When your cash buyer is calculating if this is a deal for them or not, 6% is going to be put in there not just for the purchase but also if they’re selling this. If they’re going to be flipping this property, this goes to that 6% mark because there are typically real estate agent fees. If they were buying it to hold it typically, it’s about 2% to 3% of the purchase price. I like going a little bit higher to give us a buffer. The 6% of this is $9,000.
This is where people get confused because we’ve gone through this. The minimum profit for properties under $200,000 is going to be $20,000. That’s going to always be in there for any property. I don’t care if that property is worth $60,000, $40,000 or whatever else. If somebody is going to take on a project, they’re going to want to make this. It’s different if it’s rental but if it’s a flip property, these are the properties I want you to go after the roughest of the roughest because this builds in bigger assignment fees for you with the same amount of effort. We want to look at ugly properties.
Next, we’ve got renovation. Let’s say that this property is under 1,500 square feet and it needs work. We’re going to minus $25,000. You walk into the property and you’re like, “This needs some work.” It’s not something surprising. It’s like, “We need to go in, put appliances, redo the paint, do the floors, fixtures, fans, light bulbs, doorstops, door handles and all that.” That’s $25,000. We’ve got $150,000 minus $9,000, $20,000 and $25,000. That $96,000 is what you were going to sell that deal for to a cash buyer. What price do you offer the seller?
We have to build in our assignment fee. Let’s put a minimum. We like doing minimums here of $10,000. Put it in your brain. I don’t care if your market’s average is $3,000. I want $10,000. You’re building too many skills and providing too much value to not get paid $10,000 a deal. The offer price is $86,000. That is what you offer to the property owner. This is the offer. That’s the most that you want to give to the property owner.
The ARV here is over $200,000. It’s the same thing, but there’s one main difference. The closing cost is still 6%. The profit here goes to 10% of the deal not just $20,000. It goes to 10%. That’s why I’ve done a lot of content saying, “Take the ARV times .84.” That’s where it comes from. It comes from 6% for closing costs and 10% from the profit.
Go after the roughest of the roughest because this builds in bigger assignment fees for you with the same amount of effort.
Let’s say we’re dealing with the property that’s $400,000. The ARV is $400,000. The closing cost on that is $24,000. The profit at 10% is $40,000. That’s much more than that $20,000 because there’s more risk taking down this deal, so there should be more reward. Ten percent is a minimum that people are looking for. People argue with me all over the country. My investors and cash buyers want 30% or 20%. If the properties are $75,000, absolutely.
If you’re in a market that is selling properties at $400,000, making $40,000 on one deal from fixing and flipping a property is what they’re looking for. If you’re going way lower, you’re losing out on deals. People will pay for this. Let’s go renovation and put that fix and flip repair costs back up. Let’s say that this one is bad, 2,000 square feet, it needs $75,000 in repairs. That’s $261,000. If you’re doing an assignment fee and it’s over $200,000, what do you think I expect? Do you think I want you to make $10,000 on this deal? We go for a $20,000 minimum.
That puts us at $241,000 for the offer price to the property owner. $20,000, $241,000, that’s what we offer. They fix it up and put all this money into it. They’re making it look beautiful. They sell it for $400,000. Let’s look back again. What’s the 66% of $400,000? It’s $264,000. That’s a little bit higher. This one needed a little bit more work, so we put in $75,000. Make sure that you run your calculations. If they’re willing to go $264,000 and you see that property needs a lot of work, maybe they will come down to that $241,000, and you are rolling.
That is how you come up with an offer price for 1) That the property owner is going to go for, and 2) That you’re going to be able to make what you want to make on your assignment fee. If you were interested in joining the most proactive group in real estate, investing it is the TTP Program. Go to WholesalingInc.com/TTP, scroll down, and check out the hundreds of testimonials and what the program is about. If it feels good in your guts, then sign up for a call. I look forward to working with you personally.
About Brent Daniels
Brent Daniels is a multi-million dollar wholesaler in Phoenix, Arizona… and the creator of “Talk To People” — a simple, low cost, and incredibly effective telephone marketing program…
Also known as “TTP”… it helps wholesalers do more, bigger, and more profitable deals by replacing traditional paid advertising (postcards, yellow letters, bandit signs, and PPC) with being proactive and taking action every single day!
Brent has personally coached over 1,000 wholesalers enrolled in his “Cold Calling Mastery” training, and helped 10,000’s of others who listen to him host the Wholesaling Inc. podcast, watch his YouTube channel, and attend his live events…
A natural leader, Brent combines his passion for helping others with his high energy, “don’t-wait-around-for-business” attitude to help you CRUSH your wholesaling goals as quickly and easily as possible!