How to estimate a purchase price on a foreclosure fix and flip?

12 Replies

I'm looking to get started with fix and flips, I'm not 100% on how to estimate what to offer on a foreclosure. Is there a rule that I can use? I've heard about 65% of ARV, is that minus repairs? So if an ARV is $200k x 65%= $130k minus say $30k for repairs, so I can use $100k for my ideal purchase price? Thank you in advance. Nick

Yes, you are figuring correctly. The amount of profit is up to you and the amount of competition you have. We use 30% for foreclosures. Good luck!

@Nick Stango

I would think to determine how much are you trying to net on the flip? Then, what are the comps in that particular area? That should give you a good estimate of what you need to offer. Are you using the Flip calculator (by BP)?

I've put together a couple excel worksheets for fix and hold and fix and flip for buying foreclosures in North Carolina.  I can email those to you directly if you're interested.  We have bought many pre-foreclosures over the years and these have served me well.  

Be careful using formulas, they're not universal.  The reason people use 70% is 2-fold. 

1) A lot of hard money lenders won't lend past this LTV

2) This figures in 20% profit and 10% in fees/realtor commissions etc on the back end.

I'd suggest looking to see what other flippers are paying for similar houses in your area and working your numbers that way.  Look for flips in your target and see how much they paid, and then see how much they listed AND sold for.  That should give you a good idea of what your "70%" should be.

Like @Scot Howat said, be careful relying on formulas too much. They are a great way to run a quick analysis on a property, but you need to verify all of the numbers yourself. The formulas try to build in all of the costs/fees, but they can vary wildly in different parts of the country. I always like to get a solid estimate of the rehab, closing costs and holding costs and then add my desired profit margin on top of that. Learning to accurately estimate these costs, and the ARV is the key to success.

Originally posted by @Sarah Afflerbach :

I've put together a couple excel worksheets for fix and hold and fix and flip for buying foreclosures in North Carolina.  I can email those to you directly if you're interested.  We have bought many pre-foreclosures over the years and these have served me well.  

 Id love to check out the spreadsheets as well Sarah

I can be reached at [email protected]

I just sent them to you...let me know if you have any questions!

Sarah

@Stephen Seaberry an easy way to see what they purchased the house for is in the tax record. As an agent, i look at the most recent deed transfers, or MLS listings if they are available.

I use Redfin,com but's it's not available in all areas.  Its just like Realtor.com.

What I do is I pull up sold comps in the last 3-6 months and I find flips.  They should be pretty easy to identify, especially if that's your niche.  The 4 things I look at are....

1) How much did they  buy it for

2) The margin (bought price vs sales price %)

3) The level of rehab that they did (paint/carpet, new kitchen, full gut rehab etc)

4) How long it took from purchase to new listing (rehab time)

Here's an example in my area.

This is the sold listing

https://www.redfin.com/IL/Streamwood/509-S-Park-Bl...

If you scroll down to the Property History section, there's a link to view the MLS listing when the investor bought the house, and you can see the price.

Here's the original MLS listing link

https://www.redfin.com/IL/Streamwood/509-S-Park-Bl...

In this case you can see that he bought it for 90k and sold it for 159k (56% of ARV)

Aside from renovating the whole house, they also added a bath.

Hope that helps.

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