calculating my offers on flip properties

6 Replies

I am a new investor in the Columbus ohio mkt. I have been at it four weeks now. I have been using the 70% of the ARV - rehab to come up with my offers. All my offers have been on REO and Hud. I have put in 16 offers so far. Non have been accepted. I know its not a ton of offers but I was just making sure that I am using the right math for the region that I am in.

Thanks for any comments or opinions. 

Hey Dan,

The Columbus market is very competitive with Hud and reo deals. I assume you will be able to complete the rehab yourself given your carpentry background? If so, you are saving a lot of overhead. I would increase your bids to 75-80% ARV.

Subscribe to a few wholesalers buyer lists for more exclusive deals as well. 

Best of luck to you!

Steve

The 70% rule assumes that of the remaining 30%, 10% will go toward your closing costs, realtor fees and holding costs. The other 20% is your profit. So if you're willing to take less than 20% profit -- which depends in large part on the price point of the properties you're looking at -- then you can go up to 75 or 80%.

The assumption that you're doing the rehab yourself does theoretically give you a leg up. For example, if I calculate that it will cost $25k for my GC to do a rehab, and you can do it for $20k, your offer should be $5k higher than mine, all else being equal. Consequently, I wouldn't suggest you automatically increase the percentage just because you're doing the rehab yourself. Just keep making offers. You might also look at doing some of your own marketing directly to motivated sellers or partnering with a wholesaler as Steve suggested.

The 70% rule should be an initial sniff test that the project has merit to warrant an actual analysis of feasibility. You are in the construction trades, so you should have a solid handle on the rehab and costs associated. 

You really need to calculate real expenses associated with purchase and sale, holding costs, and rehab. Then you can back into your offer based on assumed ARV and the desired level of profit.

What I am seeing is most of the houses in neighborhoods that you would want to flip in Columbus are selling at 80% minus repairs or above on the MLS.

Many many many investors like you are scouring the MLS daily for properties to bid on. The inventory is low so everyone is bidding on the same houses, cash, fast closing, etc. I still bid on houses that way and still can't get anything off the MLS at the numbers I need.

The problem is you are competing with everyone with a laptop and a credit card (on hudhomestore and MLS).

You need to find sellers BEFORE they call an agent.  Direct marketing is the professional RE investor's standard tactic.

Search here; direct marketing, yellow letters, contacting sellers directly.