Getting offers at below land value?

Question

Hello BP Community,

I'm relatively new to fix and flip and I've been making offers on property using "70% ARV minus repairs" which makes offering prices sometimes below land value. My realtors keep telling me that people generally won't sell at those prices even if I have quick completions and "inspection only" clauses. So i want to get the BP' community's opinions on this. Is anyone else getting offers accepted at below land value or should I be capping out the minimum offer to at least land value?

Russell Brazil · Answer

Here in DC we basically underwrite a flip using 80% instead of the commonly referred to 70%. 10 years ago though, we used 65%.

Jay Hinrichs · Answer

one needs to also remember that those metrics were spawned out of the deep US depression of 2008 to 2011 .. they are no longer germane unless your buying in distressed asset areas.. IE rough areas .. with high crime and a lot of turn over with very few homes actually selling to homeowners.

For the most part Canada be it Alberta or BC  simply did not crash.. like the US.. and defaults are minimal in those provinces.. so I just dont think there is near the distressed asset opportunities..

I think the only way to really create value there is forced appreciation.. IE Not just bottom feeding..

there is money to be made splitting land and selling lots to builders or new construction.. that you can do.. and you can do short term lending I Lent money in BC and did quite well..

Russell Brazil · Answer

You can not simply apply a formula to a house an expect to buy it for the price a formula tells you. You need to instead locate the properties/neighborhoods/markets that fit the formula.  You cant force the numbers onto a property, you find the property that fits the numbers.

Adam Gollatz · Answer

Finding leads will always feel like looking for a diamond in the rough. If it was easy, everyone would be doing it. And if you are going after the same leads as everyone else, chances are they have gotten the same offer from other before you.

Markets vary and even though BRRR is a great strategy, it cant be applied everywhere. What area are you trying to do this in?

Adam Gollatz · Answer

How are you assessing land value, from the tax assessment? I say stick to your numbers and keep going. Just because your offer doesnt work for one person doesnt mean it wont work for everyone.

George Lay · Answer

Thank you all for the insights!

George Lay · Answer

You're absolutely right. I need to find a different avenue other than the MLS listings that i've been using. I've been looking into direct mail on online ads as another avenue to expand the marketing.

I'm buying property in Edmonton, Alberta. It's one of the larger cities up north with about 1 million residents.

George Lay · Answer

@Adam Gollatz

The land values are based on what similar lots in the neighborhood sold for without the houses on top. I take it with a grain of salt because its what the realtors are telling me but it kind of makes sense that people wouldn't want to accept a price that is lower than land. I agree with you, there would likely be people who are motivated enough to sell but am I trying to find a diamond in the rough with that approach?

Getting offers at below land value?

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