How much will you pay as an investor . . . Buy & Hold vs. Flip

6 Replies

Buy and holds typically is 1% rule.  But there are the bp calculators to help look at everything in detail.

Flip basics is using the MAO forumal ARV*70 - repairs = 110k.

From here you need to see how motivated the seller is.  If they are motivated and go for the flip number if not as much or not as much equity then go for the rental number (160k).

Depends on how long the bank has owned the bank and if the property is a hazard to the community.  

When coming to a bank its your job to make a case that the property is worth the price your offering and it can be a lengthy process.  Most banks get a Brokerage Price Opinion for what the property is worth and you have to show the hidden flaws in the arguement, hidden repairs, and dangers of the house and how difficult it will be to sell it.

In all honesty this conversation can take a long time I had some training on it that was 10 hours long. But more than likely the bank won't want to sell it as a flip and if they did you would need to hold on to it for a period of time till you could sell it (or an LLC that is the owner of the property).

My best advice is:  You probably will need an agent (more credible that you), find the reasons its worth the price you are offering, and build connections with the bank (meaning constantly following up).  If you find this helpful please let me know or just vote

@Saji Ijiyemi as a flip, using your numbers, I would want to buy that for $100k - $105k. As a hold, ARV doesnt matter. It's about how much you own it for. The 1% rule is a cash flow negative deal in my area, so I would probably want to be all in at less than $140k, which means my offer would be $110-115k

@Saji Ijiyemi   

My experience with REO's recently is there is very little room for discounting beyond an approved list price. The demand for REO's is so high right now that if you don't buy the place for what they are asking, somebody else will. You can try to justify a low offer all you want, but chances are somebody else will come by and pay what they are asking.

REO's are ordering multiple BPO's and CMA's, and in many cases they are getting rehab bids and even doing the rehabs & selling on the retail market. Banks know the value of the assets they have. Gone are the days of a stupid banker selling assets for pennies on the dollar.

A comment on "rules":  1% isn't a rule. it's a guideline. Works in some places, doesn't even come close in others. 70% isn't really a rule either - every deal is unique, so if you peg yourself into these "rules" you will miss out on everything that just barely doesn't fit in the rigid box of rules.  These guidelines help to create a system - but guidelines are not hard and fast rules.  The most successful people I know in this business are incredibly flexible and creative.  Rules can kill flexibility and creativity.