Wholesale Calculator: How To Analyze Your Real Estate DealsJun 09, 2023
Real estate wholesalers have found an incredibly profitable niche facilitating transactions between motivated sellers and rehabbers. However, the best wholesalers know a free tool that can make their jobs easier and maximize profits even further: a real estate wholesale calculator.
With the help of a wholesale price calculator, wholesale business owners can capitalize on an increasingly active real estate market. According to ATTOM Data Solutions’ Year-End 2022 U.S. Home Flipping Report, “there were 407,417 single-family homes and condos flipped in the U.S. in 2022. That figure was up 14 percent from 357,666 in 2021 and 58 percent from 2020, to the highest point since at least 2005.”
More people are flipping homes than ever, and a real estate wholesale calculator can help wholesalers capture more buyers. As a result, we’ve developed this guide to teach you the most critical aspects of wholesale calculators, including:
- What Is A Wholesale Calculator?
- How Do I Calculate My Wholesale Offer Price?
- What Is The 70% Rule In Real Estate?
- What Is A Good Profit Margin For Wholesale Real Estate?
- What Are The Benefits Of Wholesale Real Estate?
- Final Thoughts On Real Estate Wholesale Calculators
What Is A Wholesale Calculator?
On the surface, a real estate wholesale calculator is a wholesale tool that calculates and analyzes various aspects of prospective wholesale deals. Often taking the form of computer software, wholesale calculators allow wholesalers to evaluate homes, estimate expenses, calculate potential profits, and make informed decisions about potential subject properties. A proper real estate wholesale calculator will determine whether or not a property is worth investing in—simple as that.
Beneath the surface, however, a real estate wholesale calculator has less to do with wholesalers and more to do with the rehabbers and home flippers they work with. If for nothing else, wholesalers don’t need to know the variables and valuations associated with a property; they simply need to control the right to buy the property. That said, knowing the specific metrics related to a subject property is invaluable when lining up an end buyer.
Ultimately, real estate wholesale calculators complement sales pitches from wholesalers to rehabbers. With the information a real estate wholesale calculator can generate about a property, wholesalers can tell rehabbers everything they need to know—including why they should acquire the right to buy the property. Perhaps even more importantly, if the numbers are encouraging enough, wholesalers may be able to provide objective reasoning for demanding a higher fee for their services.
Read Also: Wholesale Real Estate: The (ULTIMATE) Guide
How Do I Calculate My Wholesale Offer Price?
To calculate the wholesale price (or the price a wholesaler promises to get an end buyer to pay a motivated seller), investors must first determine the cash buyer’s price. As its name suggests, the cash buyer’s price is how much you can expect an end buyer (typically another investor) to pay for the subject property; it’s typically a lower price than the home’s true market value.
This is where a real estate wholesale calculator comes in handy; it will tell investors how much an end buyer should pay for a home while leaving enough room for profit. In doing so, the calculator will account for factors like the property's condition, the cost of the product, recommended retail price (RRP), selling price, market demand, markup potential, cost price, location, labor cost, rehab costs, and potential for profit after renovations.
Next, wholesalers will determine how much profit they minted to make from acting as the intermediary. The desired profit depends on the property's value, work needed, and other market conditions. The payment should align with market standards and compensate the wholesaler fairly for their efforts.
Once wholesalers know how much they expect an end buyer to pay and their fee, they can calculate their wholesale price. To do so, subtract the desired fee from the cash buyer price. The equation looks like this:
Wholesale Offer Price = Cash Buyer Price - Desired Wholesale Fee
For example, the seller expects $150,000 from the end buyer (the cash buyer price). In return for introducing the seller to the end buyer, the investor desires a $10,000 wholesale fee. As a result, calculating the wholesale price would look like this:
Wholesale Offer Price = $150,000 - $10,000
The investor’s wholesale price would be $140,000 in this scenario. That way, the seller gets the promised price, the end buyer gets a deal with attractive profit margins, and the wholesaler receives a fee for their services.
Now that you have an understanding of the math behind wholesale deals, you are well on your way to mastering the art of wholesaling real estate. But why stop here?
To deepen your understanding and acquire more actionable insights into this exciting industry, make sure to watch our video on "How To Wholesale Real Estate Step-By-Step!" This video will provide you with steps and strategies to enhance your real estate career, taking you one step closer to your investment goals.
What Is The 70% Rule In Real Estate?
The 70% rule is a loose guideline used by real estate investors to determine how much they can spend on a property while leaving room for attractive-enough profit margins on the backend. The 70% rule suggests investors shouldn’t pay more than 70% of the subject property’s after-repair value (ARV) minus the estimated repair costs. Calculating the 70% rule looks something like this:
(ARV x 0.7) - Repair Costs = Maximum Allowable Offer (MAO)
The 70% rule should tell investors the maximum amount they can spend on a home while retaining worthwhile profit margins. However, It is worth noting that the 70% rule is far from perfect and should only serve as a guideline. Therefore, investors shouldn’t treat the 70% rule as gospel and instead should use it to complement a more extensive analysis.
Additionally, the 70% rule will vary from market to market. While there are plenty of locations where this guideline provides investors with a good starting point, there are plenty more where the 70% rule isn’t enough. For example, investors may need to eclipse 85% of the ARV (minus repair costs) in more competitive markets. Of course, investors may have to spend more in competitive markets, but profit margins are likely high enough to support the increase.
The 70% rule provides new rehabbers and home flippers with a good starting point, which begs the question: Why are we talking about it in an article about real estate wholesale calculators? The answer is simple: If wholesalers can calculate the maximum allowable offer, they can connect sellers to buyers and collect their fees quicker and easier.
Want to learn how to analyze properties like a pro? Join Alex Martinez at his FREE training to learn how to get started with house flipping and wholesaling!
What Is A Good Profit Margin For Wholesale Real Estate?
Wholesale profit margins represent a nearly infinite return on investment because wholesalers don’t put any of their own money on the line. As a result, every dollar made in a wholesale transaction is essentially profit (minus the time and effort spent to make the deal happen).
That said, wholesalers can’t charge any fee they like; they need to be reasonable or risk losing business. Wholesalers will only remain in business when their pricing strategy is worthwhile for rehabbers, which begs the question: How much can wholesalers charge for their services?
To determine how much a wholesaler may charge for their fee, the first step is to reverse engineer an impending deal. If a wholesaler knows how much the end buyer wants to make on their investment, they can choose a more acceptable fee. More often than not, rehabbers are looking to make a return on their investment somewhere in the neighborhood of 10% to 15%. Therefore, the fee needs to be low enough for the end buyer to realize their best ROI but high enough to make the time spent worthwhile.
What Are The Benefits Of Wholesaling Real Estate?
The benefits of wholesaling real estate include, but are not limited to:
- Low Barrier To Entry: Wholesaling is generally viewed as the gateway investing strategy for real estate entrepreneurs. Of the exit strategies made available, it requires the least experience, the least amount of capital, and exposes investors to the least amount of risk. As a result, wholesaling’s low barrier to entry makes it the optimal choice for beginner investors.
- Minimal Investment: Traditional wholesaling strategies don’t require investors to put their own money on the line; all they do is acquire the rights to buy a home. The only thing they are investing is their time, which—if done correctly—is well worth the investment.
- Less Exposure To Risk: Every real estate investing strategy coincides with at least some level of risk, but wholesaling is perhaps the “safest” of them all. Investors aren’t on the hook for large sums of money when they don’t invest a single dollar.
- Speed Of Implementation: The speed at which a wholesaling deal may be completed is second to none in the real estate sector. Whereas rehabs and rental properties require lofty time investments, upwards of months and years, wholesaling may be completed in as little as a few days—or even shorter.
- Networking: Wholesalers must connect sellers with buyers to properly wholesale a property. Therefore, networking is a wholesaler’s best friend, as the more potential buyers they have in the pipeline, the more likely they will be able to line up a buyer for a deal. The resulting network effect will only play to the wholesaler’s strengths and increase their ability to complete future deals.
- Working With Off-Market Deals: It’s common for wholesalers to work with homeowners who don’t list their properties on the market. As a result, few people—if any—know about the property’s ownership status. And while off-market deals may be slightly harder to find, there is virtually no competition.
- Profit Potential: The primary reason real estate investors wholesale properties is the profit potential relative to the amount of work. Experienced wholesalers may wholesale a deal in as little as a few hours and make tens of thousands of dollars. Of course, that’s not always the case, but the profit potential exists.
Final Thoughts On Real Estate Wholesale Calculators
Wholesaling has proven that it belongs amongst today’s most popular real estate exit strategies. This is because the profit potential relative to the time invested in a deal is simply too attractive for any large or small business to pass up.
That said, there’s a tool that can simultaneously decrease the time spent on an exchange and increase the potential return on investment: a real estate wholesale calculator. This invaluable tool allows investors to make quick, informed decisions and pitch their opportunities to end buyers based on accurate metrics.
In the end, calculating a wholesale deal streamlines the process, mitigates risk, and ultimately increases the chances of success.
To truly excel in real estate wholesaling and make the most out of every deal, gaining in-depth knowledge and practical skills is essential. At Real Estate Skills, we offer FREE real estate training designed to equip you with the tools and expertise you need to succeed in wholesaling and flipping houses. Don't miss this opportunity to fast-track your path to real estate success. Sign up for our free training today!