Hello my is AL Wimberly, I am somewhat new to this flipping houses concept, but I had educate myself to the point I do understand most of the concept. So my question to you is I am working on possibly getting my very deal under contract on flipping home for a deal. EX - There is seller that is selling his home a 2BD home $375,000 and most of the home in that area from all my research are going for $390,000.
@AL Wimberly Unfortunately your example would be something every flipper would pass on unless the seller seemed very motivated. Basic formula that most flippers will use is something along the lines of:
MAO (maximum allowable offer) = (ARV * 70%) - repairs needed
People use anywhere from 60% - 75% depending on the market
This should get you to a pretty good number. You holding costs, financing costs and purchase/sale costs are not included in this so get a good estimation of what these will run you and you will have an idea as to where you set your %. In North Texas I personally use 68 - 72% for MLS properties and 60 - 65% for off market properties I find through direct mail or other marketing (I do this to help pay back my marketing expenses and typically these are more motivated sellers).
I hope this helps. Please ask more questions here and some smart guys or I will answer them.
@AL Wimberly Glad it helped. Now you have to go out and start analyzing deals? Are you doing that? Inaction is the biggest contributor to failure. If you don't start, you can't succeed.
Let me know what I can do to help get you jump started. You have to want it, but I can help provide you moral support.
@AL Wimberly Are you meeting face to face with sellers? Do you have a direct marketing campaign? Or are you dealing with seller's agents?
If it is an off market property I would find out the amount owed on the home. Then find the ARV. Take 65% of the ARV - Repairs needed and see if that is more than what is owed on the home. If it is I would split the difference and offer between the two. If more is owed than this calculation, then walk away from the house. A short sale probably wouldn't work at this discounted rate.