Ideal % of profit for a flip

8 Replies

I'm interested in a home that sold at auction for 38K last week, the current appraisal is 76K. Known needed exterior repairs are approx. 5K, inside unknown as there were no viewings. It's a brick home built in 1977. I'm interested in making an offer to the investor as is, pending results of an inspection at my cost. It's a rural property, not centrally located to amenities, not in a desirable renting location, and 2 bedroom. What would you consider to be a reasonable offer? 

Current appraisal meaning as is condition at 76k? Lets assume ARV 76k.

76k-5k-10k (unknown interior).    I'd worry about wiring upgrades needed or lead paint if that is common in your area.    Otherwise    45k probably is fine for my market.  

Originally posted by @Leigh C :

Current appraisal meaning as is condition at 76k? Lets assume ARV 76k.

76k-5k-10k (unknown interior).    I'd worry about wiring upgrades needed or lead paint if that is common in your area.    Otherwise    45k probably is fine for my market.  

 Yes, 76K in "as is" condition. I should add, there was a 10% auctioneers fee, so the investor has about 42K in it at this point. Good to think on. Also, in Ohio : ) Thanks! 

Originally posted by @Leigh C :

Well if it is as is condition all those repairs should yield 70-120% of the cost back.    So paying 50-55k would be fine in theory.

 Okay, I was thinking of offering 53-55. I know he could get a greater return if he held onto it and did more work but then there's the added time and expenses too. So idk if he'd be interested in "as is" but worth a try and I want to make a fair offer. : ) 

What's the ARV of the property when it's fixed up? You're probably going to have to reverse engineer his numbers to try and figure out what they are planning to make with the deal. Things you'll need to know to try and figure that out if it's a flip.

1) Their purchase price.  Sounds like 42k.  Don't forget closing costs and items like that which is probably another 3-4k

2) Do they have a loan on the property or did they pay cash?  If they have a loan, you'll need to factor in the interest they'll be paying.

3) Costs associated with a sale (ie. commissions to real estate agents and more closing costs to sell the property).  Here in MA, it's about 5% for commissions and another 1% of the sale price for closing costs. 

4) Estimated repairs...you'll need to take a best guess at this. 

Using those numbers, you should be able to try and figure out what their projected profit is and use that information to come up with a good offer.  If they're going to make 100k on the deal...then it'll be tough to make them an offer where they unload the property for a much smaller profit.  Now if the deal seems to be on the thinner side...maybe they would unload it for something close to what they paid for it.  If that's the case though, I would be careful that you have enough room in the deal to make money as well (I'm assuming this is for an investment). 

I'd try and drive by and catch them while they are at the house.  Most investors are decent people and are always interested in hearing offers (at least they should be).  See if you can talk with them and get a feel for what their plan is.  That'll give you a good idea if you have a chance or not of even buying it from them. 

Originally posted by @Robert Loiselle :

What's the ARV of the property when it's fixed up? You're probably going to have to reverse engineer his numbers to try and figure out what they are planning to make with the deal. Things you'll need to know to try and figure that out if it's a flip.

1) Their purchase price.  Sounds like 42k.  Don't forget closing costs and items like that which is probably another 3-4k

2) Do they have a loan on the property or did they pay cash?  If they have a loan, you'll need to factor in the interest they'll be paying.

3) Costs associated with a sale (ie. commissions to real estate agents and more closing costs to sell the property).  Here in MA, it's about 5% for commissions and another 1% of the sale price for closing costs. 

4) Estimated repairs...you'll need to take a best guess at this. 

Using those numbers, you should be able to try and figure out what their projected profit is and use that information to come up with a good offer.  If they're going to make 100k on the deal...then it'll be tough to make them an offer where they unload the property for a much smaller profit.  Now if the deal seems to be on the thinner side...maybe they would unload it for something close to what they paid for it.  If that's the case though, I would be careful that you have enough room in the deal to make money as well (I'm assuming this is for an investment). 

I'd try and drive by and catch them while they are at the house.  Most investors are decent people and are always interested in hearing offers (at least they should be).  See if you can talk with them and get a feel for what their plan is.  That'll give you a good idea if you have a chance or not of even buying it from them. 

 That's really helpful, thank you! : ) Will add in the things I've missed.

-ARV, I see similar homes in good condition nearby listed for around 100K and it needs probably 15K in repairs as a guess. Not sure how he paid. So he currently has around 45 in it, 60 if he completes the repairs, more if listed through a realtor and using a loan, and then aiming to sell at around 100, so approx. 40K profit

I'm gonna drive by and try to talk to the guy and find out what his plans are with it. : ) I'm interested in it to purchase as a first home, it's pretty much exactly what I want but needs some work to bring it up to its potential.