Numerous offers on property
This is a the second property that I've found that I'm interested in and on the same day as it was listed the Realtor has informed me that there are several offers on it. This example is a 3/2 SFH in a great neighborhood in the metro Detroit area. Asking price is $21000 and comps in the area are low 90's for the same sq feet. My question is "How much over the asking price do I go?" This would be my first flip but my back up plan would be to lease. Here are a few of my estimated numbers.
Tax- $3700
Rent - $800-$1000 (if i decided to hold or due to the slow market)
Rehab $8000
My plan is to offer $25k with a ceiling of $30k
Bill
This seems to be typical in some markets where people can actually cash flow now. You should base it on the comps of the area. Let other people overpay. It is very frustrating, as you think you can buy a deal only to be priced out by other buyers.
Are you sure the comps are the low 90,000s? That seems pretty high. Are these recent comps?
Sometimes a high sales price shows up because that is what the bank "took it back for" at the Trustee's sale. It's not a true sale , but it will turn up as a sale sometimes. You have to see who the buyer and seller were if the buyer was a bank that it isn't a true sale.
If it truely comps out at 90K then it sounds like you could go A LOT more than just $30K on it. How much are you looking to make?
I have a strong suspicion that you're overinflating the comparables. What's the address? I can view the listings on Realcomp and give you a more clear understanding of what homes in the neighborhood are actually selling for.
Bill, the answer is in your last paragraph of your post. You stated that you're willing to go with $25,000 offer ceiling at $30,000. Well, this is the answer. Away think what the property worth FOR YOU. Having being in the same situation myself more then once, I always ask myself what would the property worth for me and what I can afford. Don't get into a bidding war. Most of the time you loose either by paying too much or not getting the property for bidding too low. If the property worth $30,000 to you. Bid for $30,000. Don't go for the $25,000 since you already agreed to go all the way up to $30K. Just make sure that you found all the facts and your numbers are right.
I ended up submitting a bid for $25k and was expecting a "final bid" coming back from the Realtor due to several bids submitted. Well, that didn't happen and the property sold...don't know what the winning bid amount was. I guess I can find out once the closing post.
Here is what I come up with...
This is based on Rental proerty...not flip...
Rent = 900 / month
50% rule = 450 / month available NOE
desired profit = $200 per month
$450-200 = $250 / month for P&I
Playing it safe...
$250 monthly payment = $31,000 mortgage (65% LTV 20 year amort @7.5% - Commercial type loan #s)
$31,000 loan @ 65%LTV = ~$47,000
You could pay up to $47,000 and make $200 per month based on the above info!
FOR A FLIP PROPERTY...the less you pay the more you make!
If you can sell it in 6 months and clear 15K...go for it...run your number based on a minimum profit after expenses of $15,000...everyone has a different number they shoot for on a flip!
Buy for $30K+ 10K rehab = $40K
Sell for $70K - $6K Expenses $64K
Carrying Costs = $4K
Profit = $20K ($60K - $40K)
Well the good news William is that there are about 1,000 other deals in the metro Detroit market just waiting for you to bid on.
Sorry you didn't get this one but the positive to take away is that you bid what you thought was the right number.
You don't get them all - don't second guess yourself - in today's market bidding $1 higher then you think it foolish - so many other homes out there.
Originally posted by Mark Yuschak:
If it truely comps out at 90K then it sounds like you could go A LOT more than just $30K on it. How much are you looking to make?
I have a strong suspicion that you're overinflating the comparables. What's the address? I can view the listings on Realcomp and give you a more clear understanding of what homes in the neighborhood are actually selling for.
Here is the address for those who would like to take a look at this property
MLS-29101699
Address- 9580 Mueller Taylor, mi 48180
Originally posted by Scott M.:
Well the good news William is that there are about 1,000 other deals in the metro Detroit market just waiting for you to bid on.
Sorry you didn't get this one but the positive to take away is that you bid what you thought was the right number.
You don't get them all - don't second guess yourself - in today's market bidding $1 higher then you think it foolish - so many other homes out there.
Thanks Scott..Already have one that I'm looking at.
Hey William - that is a nice house in a decent area - congrats for finding a good deal :)
Comps seem to support the $90K value (roughly) - your instinct was right on for this one.
Just for my own education -- How did you compile the comps for this property? What resources did you use to help you determine your ARV?
One slight, but significant, error in your calculations. Here you correctly calculate the max loan amount from the payment:
Playing it safe...
$250 monthly payment = $31,000 mortgage (65% LTV 20 year amort @7.5% - Commercial type loan #s)$31,000 loan @ 65%LTV = ~$47,000
You could pay up to $47,000 and make $200 per month based on the above info!
Then, you add on a down payment to get to a max price. Don't do that! You've already factored in a $200 profit from the property, then thown in $16,000 that generates NO RETURN AT ALL.
The max price you can pay is the $31K. If you have to put cash into the deal, that's fine. Adding cash and financing less than $31K will result in a higher cash flow. That extra cash comes from the cash you've added.
If you use the $31K and bump it up to $47K, you're still getting the same $200 you calculated earlier. That makes your return $2400 for a year. On top of a $16,000 investment, that makes your return 15%. Not bad, but consider if you pay only $31K rather than $47K. You put in a third for down payment. So, you're financing $20K (about) and investing $11K. You're payments about $160, giving you an extra $90 a month. That makes your annual return $3480 a year and your ROI 21.75%.
Where are you going to get such a small loan in the 7s in Detroit (an area most people dont think fondly of)?
William, was it you who bought it for $39,100? How is the flip going if so?
Hi everyone watching you solving some of the most common problems in taking the right decision. I am little confused about ARV. Will anybody consider to explain important factors to calculate ARV. Thanks in advance.
Originally posted by Nick Brian:
Hi everyone watching you solving some of the most common problems in taking the right decision. I am little confused about ARV. Will anybody consider to explain important factors to calculate ARV. Thanks in advance.
Nick, this is a good enough question to start a new topic but since you asked, I'll give you my two cents. ARV (After Rehab Value) should actually called EARV at best (Estimated After Rehab Value). To me, it is the biggest misleading claim right after Tax assessment as the real value. In this crazy market, except for very few geographical territories, it means nothing and is too open for interpretation. If you are a buy and keep investor, your only way to gage the property value is it's cash flow potential. If the property has been rehabbed already, unless there is a tenant in who committed for the rental amount, any claim is a ball park only but at least that ball park (Due diligence required) can give you an estimate of what the property worth based on 1%, 2% or whatever formula you choose to evaluate that property. If you are a flipper, you must have comps of no more then three months. Maybe by now six must at the most. However, many areas, even the comps run wild. You can have two houses with similar sq/ftage, even built by the same contractor with same amount of rooms and bathrooms and similar lot size. Those houses can be sold within the same period for prices that are thousands of dollar apart.Why? One was sitting o the market for a while, the bread winner of the family lost his/her job and is willing to drop the price or even go for a short sale. The other just came on to the market, some buyer liked it and scooped it up.
All I can say is, buyer beware
Originally posted by Mark Yuschak:
William, was it you who bought it for $39,100? How is the flip going if so?
I didn't get this one. My point in this thread was how much to bid on a foreclosure. I think this one went to a friend of the Realtor as they never came back and asked for final offers. Still working on finding my first house to flip. I've noticed that the 3/2's in my MLS search criteria have become harder to find. Currently have a bid on a very nice 3/1 short sale in the downriver area.
If you really want a property with multiple bids and you think they all are in the range you can pay but you may loose it over a few thousand, tell the realtor you will pay whatever the highest bid is plus $1,000. We did that with one property, the bank took it with $1,000 extra, and the other people were mad as you know what.