I'm in a situation where a house went on the market for 145k. I was under contract at 141k. There are 12k in repairs needed which includes a major repair of 7k for the remediation and fixing of a water issue in the crawl space. What would be the max amount you'd offer on this type of property? What is your formula? This is not a fix and flip situation. This is a buy and hold, and these repairs are all necessary and not cosmetic.
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
7y
@Carrie Smith, whether it's buy and hold or fix and flip I ask the same question; What's the After Repair Value (ARV) of the property once you complete the repairs? If the value is less than what you're going to invest in the property then you will be underwater from the start. The second question
@Crystal Smith thank you. Since the current market value was/is 145k I don’t think that would change at all. Actually with the water/possible mold problem the Market value might no longer be 145k. So what should my bottom line really be? How do I calculate the moldy crawl space value?? Lol
Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
7y
@Carrie Smith or @ Andrew Smith: Properties with the type of damage you describe in your post aren't usually sold at market value unless the seller is able to find someone who doesn't understand market value or there's some other underlying reason. To determine the After Repair Value you need to find similar homes within a one mile radius or less that have sold within the last 6 months that do not have mold problems. Similar meaning the same style, square footage, bedrooms,.....
If those homes have sold for around $145K then the bottom line is your offer should be much less than $145K. The max you should offer depends on the criteria you've established for your expected rate of return & how much equity to you want to have in the property when you purchase it. For example: Our criteria is to have at no less than 20% equity based on the After Repair Value, not the As Is Value; with a 17.5% Annual Return on Investment. If the comparables show that the value is $145K then the most we would offer is ~$104K. (80% of $145K minus the $12K rehab costs). The property would also have to rent for over $1500/month to meet our ROI number.