Why The 70% Rule Is So Important For Real Estate Wholesalers
Q: I’m a new wholesaler looking for my first deal. Can you give me some tips to help me? Terrence, New Brunswick, NJ
A: One of the most important concepts to internalize if you want to be a successful wholesaler is that you have to leave enough profit in a real estate deal to make the deal attractive enough for an end-buyer/investor to want to buy the property. The 70% rule is an essential part of the wholesaler’s formula, which first requires you to arrive at an accurate market value or after repair value (ARV) for the property in question.
NOTE: I go into more detail about the wholesaler’s formula on page 73 and 74 of my book, “Real Estate Investing Secrets”.
The market value estimate is often referred to as an after repair value (ARV) because most properties you’ll wholesale will require renovation. After you have a solid market value estimate, you apply the 70% factor, then subtract rehab and other expenses as well as the wholesale fee who hope to earn and the result is the maximum allowable offer (MAO) that you can make to buy the property. The 70% factor creates the profit spread in the deal that allows you to wholesale (you can also use a more conservative factor like 65%, 60% or 55% instead of 70%). Thanks for your question, John.
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