How low can I offer? 20 posts by 14 users

Posted: 04/27/2007 at 11:23AM

How much are the repairs going to cost? Repairs are a MAJOR part of the equation. Typical formula:
(ARV – Repairs) x 70% = Maximum Price.

8)

Posted: 04/27/2007 at 12:08PM

Better yet: (ARV * 70%) - Repairs = Maximum Price.

That will be (1) more conservative and (2) more consistent since you will be dealing with actual repair costs (the first formula only subtracts 70% of repairs and would thus have you offer more than you should on homes needing a lot of work).

For example, imagine a house with ARV of $100K that needs $50k in repairs (an extreme example, but it makes the point):

If you do it the first way, you get (100k - 50k) * 0.7 = 35k max offer
That would be 85k you would have in a house (after repairs) that sells for 100k ARV (or you are paying 85% of ARV). That's a bit high.

The second formula: 100*0.7 - 50k = 20k max offer, which would be 70K invested after repairs, or 70%.

The nice thing about doing it this way is that no matter how much work is needed, your total investment is always 70% ARV.

EDIT: I guess I was typing while wakefield posted and beat me to the punch.

Posted: 04/27/2007 at 12:17PM

Ok. So say the house is worth 100k after rehab...
100k x .7k-20k in repairs =50k roughly?

Posted: 04/27/2007 at 01:08PM

A typical Hard Money loan can add 10% to your costs. Lets assume ARV of 100k and a loan of 65k.
4 points on the loan = $2600, 18% interest for 6 months = $6,000 (round figure) for a total of $8600 or 8.6% of ARV. You will also have different carrying costs such as taxes, insurance and utilities. So when you use that formula with Hard Money you should still have about 20% profit. That can disappear fast if you blow it on your estimates or exceed you projected time frame.

8)

Posted: 04/28/2007 at 08:28AM

Try and get some pics of that pool for us. I'm really curious!

Posted: 05/04/2007 at 09:40AM

why don't you keep the pool, that way you can invite some girls over and have a pool party!

Posted: 12/20/2007 at 01:18PM

I was told by one of my mentor's that you know you've found your bottom when the seller starts flipping out. " If you didn't insult them, then you didn't go low enough."

Posted: 01/05/2008 at 12:09PM

Try to get a good idea of what the rehab is going to cost, and remember that they are not going to accept your first offer. If they do, you offered too much. You can offer as low as you want. If it's too low, they may say no. If they think they can negotiate, they will counter. I think 35k is an ok number. But don't go over 40k if they counter. Be agressive. Don't mind their feelings. You are more important, and you don't want to loose money do you?

Posted: 01/07/2008 at 04:57PM

That's the way I would deal with the pool..I would use water and a dirt compressor after you add the dirt a couple times so the dirt does not settle. Then add a couple inches of topsoil..But of course I am not a contractor/landscape professional.

Rick