Walker’s Wholesale Houses

Capitalization rate (or “cap rate”) is a measure of the ratio between the cash flow produced by the rental property that you have purchased as a real estate investments and either its original price paid or its current market value.

• annual cash flow / cost (or value) = Capitalization Rate

Cash flow is the amount left over after all your fixed costs and variable costs are removed from your gross rental income for the year.

That is the general way to compute the cap rate for your rental property.  The average nationally, according to Wikipidiea for rental properties is running about 5%

Example:

Let’s say you paid 65,000 for a property that produces a $900 a month rent.

Closing costs and fees run say $3500 for a total in price of $69,000.

Annual cash flow = 10,800 a year income less your expenses, assuming no vacancies.

For this example, 100% down at 6.5% yield PI at 436 a month or 5232 for the whole year, leaving 5568.

Taxes and insurance at $170 a month (2040 for the year) leaves 3528, annual cash flow.

Thus annual cash flow / 69000 = Cap rate of 5%.

Variables

There are all sorts of other variables to consider such as future repair monies, vacancy credits, and simple overhead such as accounting and things like depreciation expenses.  How much fine tuning you want to do is up to you.  Some investors will include the vacancy rate, others will not.  It’s your choice.  It’ll still impact your rate.

There are also other formulas out there as well, but this is one commonly accepted version.

Wholesaling houses is all we do.  That is our particular real estate investor niche and our particular area of focus.

So you want to know how to wholesale a house?  Let me give you the big picture steps.

1.  Find the Property.

We spend thousands of dollars to find the wholesale property for you.  We screen the sellers of the real estate, we filter out those who can’t sell out a discount and find something that is workable.  We handle the phone calls.

For every 100 calls we screen, one may make it to the level of deal.  That is where most of our time is spent — finding the property for you.

2.  Put the property under contract

Get a contract on the property with the seller.  Make sure that your real estate contract is valid for your state.  Make sure that you have clauses to back out of your contract with the seller.

We make sure that we have a time limit built in and that the seller knows that we will locate an investor from our private buyer’s list.

3.  Photos and Videos

Have photos made of the property and if you good at assembling them into a video, make one.  Put  these on your website.

4.  Put the property in front of your buyers list.

Post the links you created to advertise your house online and send them to you buyers website and publish the link to your wholesale buyer’s list.

5.  Expand your marketing.

Use the free online classifieds to market the property link as well as the link to your buyer’s list so that people can sign up for it.  I have found that with almost every house, using the free online classifieds brings more buyers to my list for the next possible house.

6.  Find your buyer and get their deposit.

Once you locate your buyer, get the property under assignment and collect that deposit.

7.  Take it to closing.

These 7 steps are the basic process that I use to wholesale houses full time.  The bulk of the work is done in the marketing and screening of seller calls.  We handle all that so you don’t have to.