Deal Analysis
There are key elements you need to know about the deal you are looking at to determine if it is a “go” or a “pass.”
ARV-After Repaired Value. You need to know what this property will sell for on the retail market. This is derived from the COMPS or comparable sales. This means what similar properties actually sold for. Do not go off of the list price or the assessed value. Do not use appraised value. The only true way to know is what the market will pay, and that is by using the comps.
Repairs costs. You need to be good at being able to estimate the costs to get the property in resale value. If you are new, have an experienced person do the estimate. Even if it costs $100, and you don’t do the deal because the numbers do not work, isn’t it worth the potential losses you avoided?
Holding costs. How much is it going to cost to pay the loan or what ever you used to finance the deal?
Cost of acquisition and sell. There are costs associated with closing, and selling, like realtor commissions.
Profit. How much do you or the person you are going to wholesale the deal want to make?
So…here is the formula for deciding if it is a deal.
MAO(your maximum allowable offer)=ARV-Repair-Holding cost-buy/sell cost-profit.
If the deal you are looking at is equal or less then your MAO, then it is a deal. If not, walk.
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