BiggerPockets

I will be making an offer in two days on a property. I ran the comps, drove the comps, inspected the house and have a good feel for it's value. She has two other properties she also wants to sell me that I'm hoping get so I'm giving her my best price.

Comps (with .5 mi, 15sq', same bd/ba etc. ) show a range of $195-230k.

A near identical property with slightly better features (larger yard, driveway and a little prettier) sold a week ago for full price, $235k with multiple backup offers according to the agent.

The property is 12 yrs old and feels like a worn rental. Renovations will include a few doors, flooring, int paint, stucco repair, ext fencing fix, and the like. I didn't find any major structural issues and I plan to have a home inspection sniff out component defects which will be deducted if found.

I am anticipating a generic 'lipstick' remodel to the tune of $10-12k max.

I plan to list flat-fee MLS for $400 with 3% to buyers agent $6900 .

I'll have to evict tenants.

I'm factoring a 3 month holding time (although I suspect it will be less from what I've been seeing w/ properties at this price point).

I'll be financing it.

I'm paying closing costs (Title, escrow, etc) $2500?

All totaled I'm figuring no more than $25k in costs.

I should be able to sell it for $229k fairly quick.

I plan to offer $180k

Sound offer? Too skinny? What say you?

Yeah, I'm with @Jon Holdman - waaaay too skinny. Unless I'm missing something - you can probably do waaaay better than this. There are always a TON of extra costs that you never really can prepare for.

I like the 70% rule - Take the conservative, low end future value ($200,000) , take 70% of that = $140,000. Then subtract repairs (and double your estimates).

Total you should pay = $120,000.00. That would be a deal.

My opinion anyways! Thoughts? @Will M?

I'm with these guys. How much is the cost of your capital? If you plug that in, it looks like you'll break even IF you sell at that high end of comp value AND your rehab costs are correctly estimated.

We always have a "minimum standard" of profit when we go into a flip. In this price range I wouldn't do it w/o a reasonable expectation to earn $40K after all expenses. If you're using hard money your capital costs will be huge. Based on what I see I wouldn't pay more than $120K for is as the other guy mentioned. Good luck, let us know how it goes.

Did you forget to budget for profit? Or do you do this business pro bono?

There is one very golden rule you should learn in real estate:
It will take longer, cost more, and you will make less than you expect.

Make your offer based on that and you won't lose money.

Let me also point out that your rehab estimate is too low. How do I know? Trust me. $12K will get you a LOT less than you think it will, and if you do a $12K rehab, I can guarantee you won't get anywhere near the top of the market value.

I'd start by doubling that rehab estimate.

$4000 Holding costs (assumes 6 month vacancy on a 4.5% OO 30yr fixed)

Are you planning to actually move in? That always makes rehab a challenge.

Even if you do, this might work. Once. When a lender makes an OO loan, they don't expect it to be paid off in six months. Don't expect to get a second loan from the same broker or lender.

How are you getting away with 3% commissions? Are you an agent?

[/i]How are you getting away with 3% commissions? Are you an agent?[/i]

I've used flat fee MLS offering 3% to the buyers agent. Has worked good for me so far.

I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that.

Check out "occupants from hell" for a little glimpse at the games that can be played in CA. This deal is terrible. RUN as far and as fast as you can away from it.

Run Forest RUN!!! Really. Just up and run? My theory is that any deal is doable...at the right price. And the right price is what this topic is about. Not to be cavalier about it but this is just a 12 yr old worn rental that needs freshening up. I bought a house at a sheriffs auction a few years ago that was a real heap. Now that one I could understand, But run from this one though??? Think I'll just reduce the offer .

Tenants issue was covered previously.

"I do not intend to move in. Regarding a OO loan, I've done it once before and sold in just under 90 days. I've spoke with others who have as well. My impression is that the lender isn't as concerned about it as some may think. I 've used the same lender for 3 NOO loans and 2 OO , one of the with a short turn around. While I don't plan to do this every time i recently sold my primary residence so i plan to take advantage of that. If he balks i can go elsewhere. Honestly I'm not too worried about that."

Will, man, you're playing with fire. The lender may not care but the feds do. You & your buddies will get fined for this if caught. Please stop doing this & follow the rules.

Glenn Espinosa - the OP has ALREADY talked himself into this deal; it sounds like he is trying the talk US into this deal too!

Secondly, why use the 75% figure rather than a flat profit? Because it works for most investments though it too needs to be adjusted as price points go up or down in range. Example, if you use just a flat profit of 20k, and it takes $200k investment, then you made 10% profit. Not bad, but not good. If you use that same $20k and have to invest $400k, then your return is a measly 5% and no room for error. This is why pros use %'s.

I would disagree with Jon on not using top market numbers for CA but only because of my experience and knowledge of the CA market. Prices are going up, and a fully rehabbed home will command top dollar with likely multiple buyers in the price range you are looking at. Again, I am only speaking of my market, not Nationwide.

Lastly, I agree with everyone here regarding the FACT that this deal is way too tight even with your $230k exit value. Offer lower or move on.
I also agree with J Scott in that your rehab figure will likely need to be higher and include some kitchen and bathroom upgrades to obtain full market price. With renters in there now, I would imagine the fixtures and cabinetry is in need of upgrades.