In this article, I’ll take some time to go over what many real estate investors look for in deals. You should realize that while I am covering what MOST real estate investors are looking for, there are real estate investors who have very focused interests and may fall outside of these parameters. It doesn’t hurt to strike up a conversation with people on your buyers list to get an idea of ​​what each person is looking for. That way, you’ll be more confident when finding wholesale deals because you know which investors would be most interested in that deal. In fact, a quick call to the investor or investors you think would be interested in the deal BEFORE you take it on can actually save you time in the end, as sometimes you may discover it’s not quite the deal you thought it was. .

So let’s take a look at what real estate investors are looking for in deals. They tend to look for one or more of the following:

below market price

In the simplest form, investors want to buy a home for less than it is currently worth. They want to get a discount. The higher the discount, the better, but in many markets the formula for buying homes at a discount is that the most an investor can pay for a home is:

70% of the after repair value (ARV) less what the house needs in repairs. This is often called the Ugly House Maximum Allowable Offer (MAO) Formula or Ugly MAO in investor lingo.

To explain that formula with an example, if you had a home that was worth $100,000 if it was in good repair (that’s the value after repair, ARV for short), and you needed $15,000 in repairs to make it worth the ARV, then the most an investor must pay for that house is $55,000. This is how I calculated it:

• 70% of the ARV – Cost of Repairs = MAO
• 70% of $100,000 – $15,000 = MAO
• $70,000 – $15,000 = MAO
• $55,000 = MAO

Notice the previous sentence “most investors ought many investors want even better deals than being on the edge of that formula, especially in soft real estate markets.

It is also important to note that if an investor wants to buy at that price and needs to do a wholesale rate, they must contract the house for LESS than that amount. How much less? Sufficiently below the price that the investor will buy from you to pay for your marketing expenses and your wholesale fee. So the answer to how much less is how much money you want to make in your wholesale business.

Investors who buy based on getting it below current market value are often top investors who are fixing or investors who will quickly turn the property around.

positive cash flow

Investors who intend to buy the property and hold it for rent are often more concerned with buying properties where the property income makes sense based on the price they are paying and the financing they can obtain.

While I don’t think it’s a strong formula, one formula they often use is that if the rent on the property covers the full mortgage payment, taxes, and insurance, then the investor is cash flow positive. You should consider reading additional articles on net operating income to get a much better analysis of what I believe to be positive cash flow.

So if you use that formula and a financial calculator that you can get for around $25, you can calculate the most an investor can pay for a house.

Let’s take a look at an oversimplified example, so you can understand the basics of how to do this calculation.

For this example, the house has property taxes of $75 per month and an insurance payment of $50 per month.

If you knew that the rent for this property is $1,000 per month and that by calling a local mortgage broker, the current interest rate an investor could earn on a loan on this property would be 7%, then you can calculate the maximum payment you could afford with a financial calculator. Using this figure, you can determine the most you can afford for the house with that payment. This is how the maximum payout is calculated:

• Rent – Taxes – Insurance = Maximum Loan Payment
• $1,000 – $75 – $50 = Maximum loan payment
• $875 = Maximum Loan Payment

Enter the following into your financial calculator and calculate the PV (the loan amount in our case):

• N = 360 (that’s for a 30-year loan)
• PMT = – $875 (the maximum loan payment)
• I/Y = 7% (the quote we got from the Lender)

Maximum loan amount = approximately $131,423 (you need a financial calculator to work out this number).

So, using this example, the most your investor could pay to have BREAK-EVEN cash flow (and many investors want to earn $100, $200 or more per month in cash flow), would be around $131,000. In order to wholesale the property and charge a wholesale fee, you need to hire it for less than that.

I want to emphasize that the example above is an oversimplification and that there is a lot more about cash flow property buying that you will want to learn about.

owner financing

Some investors are looking for investment opportunities where they do not need to borrow money from a hard money lender or bank to purchase the property. They want to buy property where some, or preferably all, of the money to buy the home comes from the equity the owner already has in the property. Another way of looking at this is that the owner is willing to accept payments instead of just a lump sum to buy the property from him.

You may be looking for properties where the seller can finance all or part of the down payment or where the seller can finance the entire purchase. There are many variations on what owner financing can look like, but here is an example:

You agree to buy a house for $100,000. The seller agrees to accept $80,000 in cash (that is, you get a new loan from a bank for $80,000 and the seller receives that amount in cash from the bank) and will then accept payments for the remaining $20,000. Of course, you’ll need to negotiate the interest rate (if any), the amount of the monthly payment, and the term (number of payments) for how the $20,000 will be paid back to the seller.

Another relatively common, but hotly debated, method of owner financing is home purchases “tied” to existing financing, in which the buyer agrees to make the seller’s original mortgage payments, often without the lender’s permission. A discussion of “Subject to” is beyond the scope of this article.

Other real estate investors often offer owner financing to attract buyers who won’t or can’t go to a bank to get a loan. Rarely do private sellers who are not seasoned real estate investors offer direct owner financing. To get owner financing from private sellers, you almost always have to apply and negotiate. In other words, if someone advertises owner financing, they are probably investors and your chances of wholesale the deal are slim. To get financing offers from the owner, you will need to show, through the owner’s ability to sell and negotiate, what the benefits would be to the seller of selling your home and accepting payments instead of just receiving a lump sum.

the more the better

Finally, it’s important to remember that investors look for one or more of the above criteria. If you can get cash flow positive, below market price, and owner financing, that’s even better, and the deal is likely to be more desirable to real estate investors.

While investors tend to focus on finding deals that meet the three criteria above, the seller’s motivation is often what dictates their ability to obtain a below-market price, positive cash flow, and/or owner financing. . That’s why you often hear real estate investors talk about finding motivated sellers. It is the seller’s challenge that is causing the seller’s motivation and your offer to purchase the house must solve your challenge to make your property worth selling at a discount, cash flow positive and/or with owner financing.