As a Deal Architect or Wholesaler, one of the most frequent activities you'll engage in is analyzing deals. So choose your tool, whether pen and paper, a spreadsheet, or software, and let's get to it [we used the accessible version of www.dealcheck.io for this example deal analysis]!
The first of the two most impactful numbers when it comes to real analysis is After Repair Value (ARV).
It's very important that you know the market value of the asset you have control of.
To determine the ARV of a subject residential property, you will typically compare it to the most recent three to four similar properties sold in the past three to six months within a one-mile radius of the subject property. Preferably it should be within + or -10 years in age and within + or - 300 square feet in regards to the living area in comparison to the sold properties. A real estate agent can provide you with a CMA (comparative market analysis) if necessary, especially if you have or intend to do business with them.
The second most impactful number in the deal analysis is Rehab Costs. If there is such a thing as a single number either making or breaking you - this is it!
It's extremely important that you have someone on your team that is honest and highly skilled in this area. This may very well be the number one cause of failure for real estate investors. As a Wholesaler, you typically don't have this worry because you'll most likely be selling the contract before any repairs are done. However, if you want to build a sustainable relationship with your customers, it would be in your best interest (and theirs) to have a process to estimate repairs accurately. Of course, The Wolf Pact Method will help reduce this risk exponentially for everyone involved!
Your next step would be to estimate the number of months it will take you to repair and sell the property (holding period) in order to calculate your Total Holding Costs.
As you can see in the example above, the monthly holding costs are $643/mo. However, we like to break it down to a daily amount ($643/30 = $21.43). It seems to be a bit more motivating to know that it costs $21.43 per day to hold this property.
The last piece of the puzzle is to estimate your selling costs (including any realtor/marketing expenses), then calculate your profit.
Remember, this analysis is done before you spend any money or make any significant commitments! You must find out if this particular investment meets your predetermined criteria (Buy Box).
It's common to have a minimum dollar amount for potential profit (i.e. $20,000) when it comes to fix & flips.
We hope this helps, and please share your comments, questions, and experience with the Wolf Pact Community so that we all may learn.
Good Hunting!