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Rather than use a margin, use a set profit amount.įor example, let’s say you can pick up a 1000 sf brick ranch in a very marketable neighborhood. The 70% rule at it’s most basic, builds in a 30% profit margin and can be a great rule of thumb.īut investors can also look at property that may be a really quick and easy flip and determine that a property is a good deal even if doesn’t meet the 70% rule – simply because the time and money needed to complete the deal is less effort. It would look something like this:Īn Alternative to the 70% Rule for Real Estate InvestingĮvery investment property that is fixed and flipped requires a different amount of time, cash and considerations. Let’s say this wholesaler wanted a bigger fee because it was a difficult property to get under contract. Using the same example as above, the wholesaler adds the fee into the costs to flip. Wholesalers can also use a set fee amount. $ 70,200 Max Allowable Offer when Wholesaling Using the example above, the wholesaler would make an offer of $70,200 and charge a $5400 wholesale fee. They use a 65% Rule that accounts for their fee.
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This formula is also used by wholesalers they use the same basic formula but include a wholesale fee one of two ways. a subject-to transaction) or access to cheap cash When your cost of money is lower (e.g.When you have a guaranteed built-in buyer.The 70% rule is the notion that an investor cannot pay more than 70% of the After Repaired Value (ARV) of the property after accounting for the cost of your funding, repairs, holding costs and resale commissions and costs. Used by house flippers, The “Maximum Allowable Offer” (MAO) formula for flipping is based on the 70% rule. MAO or the 70% Rule – The House Flipping Formula There is a lot of emotion in real estate but it is all about the numbers. Once you have all the numbers in place, getting the deal funded or flipping the property is a breeze. Though you may have purchased a house before, real estate investing is the polar opposite of buying a personal home – investing is all about the numbers buying a personal residence is a more emotional undertaking.įor real estate investors to succeed, they must know, understand and use a basic set of formulas to guide their decision making – all based on the numbers. What Every Investor Needs to Know about Terms, Cash Flow, Formulas.īefore you even make an offer on a property and approach a lender, you have to know the terms of engagement, so to speak.