If you purchased a 1,300 sq. foot SFR that needed cosmetic repairs, how much $$$ below FMV would you pay? Also, if you really needed to flip a property, would you ever pay FMV? Thanks!
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
Our formula is pretty straight forward when you think about it. Start with pulling comps from the area to come up with the value after it is brought up to snuff...the ARV (as repaired value). Then we back into the number by subtracting out our required return, the cost of capital/carrying costs, closing costs on both the buy and sell side, real estate commissions, the scope of work cost from the contractor, and then we build in about a 10% contingency reserve for issues that might unexpectedly pop up. That gives us our "Strike Price", which is the highest we will pay for a property. Remember not to get emotional. This is just math. If you can't get it for the strike price or less...move on. Don't get mushy about a property because you really like something about it. Remember...it's just math. To answer your question, there is no "amount to pay below FMV'. That doesn't take into account the differing rehab and carrying costs. It all depends on the math.
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
Our formula is pretty straight forward when you think about it. Start with pulling comps from the area to come up with the value after it is brought up to snuff...the ARV (as repaired value). Then we back into the number by subtracting out our required return, the cost of capital/carrying costs, closing costs on both the buy and sell side, real estate commissions, the scope of work cost from the contractor, and then we build in about a 10% contingency reserve for issues that might unexpectedly pop up. That gives us our "Strike Price", which is the highest we will pay for a property. Remember not to get emotional. This is just math. If you can't get it for the strike price or less...move on. Don't get mushy about a property because you really like something about it. Remember...it's just math. To answer your question, there is no "amount to pay below FMV'. That doesn't take into account the differing rehab and carrying costs. It all depends on the math.
If you purchased a 1,300 sq. foot SFR that needed cosmetic repairs, how much $$$ below FMV would you pay? Also, if you really needed to flip a property, would you ever pay FMV? Thanks!
ARV x70% -repairs =purchase price
this formula is good because it helps you cover for things you might not think about like: transaction costs such as commissions, closing costs and holding costs. It's also helpful because repairs usually cost more and take longer than you think, and you want to make sure you make money.
I think that overpaying because you "need to flip a property" is how people lose money.
Thanks Josh for your input. I'm a newbie wholesaler, although I've flipped 7 houses and i'm a real estate and mortgage broker. I'm looking to do my first wholesale deal. Let me see if I got this correct: let's assume fmv is 400k. ARV is 560k. repairs 100k. So, 560k x .70 = 392k. 392k - 100k = 292k. This is how much you would pay as a flipper? 102k below fmv? If so, you will be making 102k, instant equity. I've been reading a lot of posts here in BP and some fix n flippers are whining if the wholesaler makes more than 10k on a deal. IMO, this isn't fair. The wholesaler is the one that spent $1,000's and a lot of time finding a deal, not the flipper, yet the flipper thinks it's fair to make 10x as much. what's wrong with this scenario? the flipper can turn around and sell it to another flipper and make 50k-100k. I've seen newbie and novice flippers buy fixers in the MLS at fmv all the time. perhaps I should take out a HML, sell it "as is" in the MLS for fmv. I will make roughly 90k after expenses and I won't have to hide my assignment fee from flippers and whatever else red tape there is. what are your thoughts? BTW, I really appreciate your help.
Doug, does your lender accept equity from the subject property as a source of down payment?
I don't know many that do. I wish I had better news for you. The reason lenders do that is there is a massive difference in default rates between those that have skin in the game and those that don't put anything into it.
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
3y
The flipper takes all the risk . A wholesaler has weasel clauses to get out of the contract . Flipper will have a couple hundred thousand on the line , hoping to profit . And yes flippers lose on deals .
Good observation Josh. As a real estate agent, do you see "investors" paying full (listed) price from properties in the MLS?
In general, if someone's line of business is fix and flipping, often times they will not be paying full list price on a MLS deal. Most of the time, deals will either be sourced off market, or potentially on market properties which get no demand from the market and can be purchased way under market price due to seller distress.
For rentals, it may be a different story.
EDIT: Just realized you were asking for Josh since he's an agent, my bad.That is what I see though.
If you purchased a 1,300 sq. foot SFR that needed cosmetic repairs, how much $$$ below FMV would you pay? Also, if you really needed to flip a property, would you ever pay FMV? Thanks!
Impossible to answer. Its ALL about how much reno it needs. For those of you trying to provide Insite, come on, you cant. its impossible to answer. I have done about 500 deals so I am not speculating You are not ready to buy anything,,,,,, yet. I strongly suggest you get to your local RE meeting. Connect with those doing deals, learn than apply what you learn,
Steve, 20% of what? 50% of what? I'm a newbie wholesaler. Thanks
Welp, your original question is how much min profit margin for a flip. 20% COC net minimum for me to do anything involving this much risk and effort besides the 5% risk-free I get doing nothing. Costs and taxes eat 30% of your 'profit' so I'd need 50% gross profit on a flip to be worth it. All-in $100k, sell for $150k for example.
Thanks Josh for your input. I'm a newbie wholesaler, although I've flipped 7 houses and i'm a real estate and mortgage broker. I'm looking to do my first wholesale deal. Let me see if I got this correct: let's assume fmv is 400k. ARV is 560k. repairs 100k. So, 560k x .70 = 392k. 392k - 100k = 292k. This is how much you would pay as a flipper? 102k below fmv? If so, you will be making 102k, instant equity. I've been reading a lot of posts here in BP and some fix n flippers are whining if the wholesaler makes more than 10k on a deal. IMO, this isn't fair. The wholesaler is the one that spent $1,000's and a lot of time finding a deal, not the flipper, yet the flipper thinks it's fair to make 10x as much. what's wrong with this scenario? the flipper can turn around and sell it to another flipper and make 50k-100k. I've seen newbie and novice flippers buy fixers in the MLS at fmv all the time. perhaps I should take out a HML, sell it "as is" in the MLS for fmv. I will make roughly 90k after expenses and I won't have to hide my assignment fee from flippers and whatever else red tape there is. what are your thoughts? BTW, I really appreciate your help.
You are right - about it all,
But at the end of the day, the person that takes the most risk will often make the most money. Or the person with the most education and resources will. in most cases, whole sellers do not have the ability to close and flip the property and are happy making a fraction of the profit, otherwise they would maximize the profit 100% of the time. we have bought properties from whole sellers where they have earned $200k on a $350k purchase, why? Bc they know the city, they know their numbers, they have multiple investors and they know what an investor would pay. if you are leaving money on the table is for a reason. Most investors will be looking at 70% of arv or lower to make the best profit possible. as a whole seller, is your job to look for buyers that would offer the most while making sure they will close! if you want to make 10x profit: you will likely have to risk more.
Thanks Josh for your input. I'm a newbie wholesaler, although I've flipped 7 houses and i'm a real estate and mortgage broker. I'm looking to do my first wholesale deal. Let me see if I got this correct: let's assume fmv is 400k. ARV is 560k. repairs 100k. So, 560k x .70 = 392k. 392k - 100k = 292k. This is how much you would pay as a flipper? 102k below fmv? If so, you will be making 102k, instant equity. I've been reading a lot of posts here in BP and some fix n flippers are whining if the wholesaler makes more than 10k on a deal. IMO, this isn't fair. The wholesaler is the one that spent $1,000's and a lot of time finding a deal, not the flipper, yet the flipper thinks it's fair to make 10x as much. what's wrong with this scenario? the flipper can turn around and sell it to another flipper and make 50k-100k. I've seen newbie and novice flippers buy fixers in the MLS at fmv all the time. perhaps I should take out a HML, sell it "as is" in the MLS for fmv. I will make roughly 90k after expenses and I won't have to hide my assignment fee from flippers and whatever else red tape there is. what are your thoughts? BTW, I really appreciate your help.
Yes, because $292k purchase is actually $315k with closing costs and financing, and $100k rehab is actually $150k with overage and holding costs, and sale of $560k is actually $520k with commission and closing costs, so profit is only $55k. I think most wholesalers should just get a real estate license, so instead of trying to get it under contract when they don’t actually intend on closing on it, they can list the property for sale and make a commission.
Maybe most wholesalers are lazy to get licensed. They know it's not required, so why bother? I'm licensed, but I can't do it the way you mentioned because I will work preforeclosures, and time is of the essence. BTY, how much is the minimum profit you will accept on a flip?
@Sebastian Marroquin. Thanks for the great feedback! You gave me inside info that I needed to know. I expected to get this insight from an investor or wholesaler, not from an agent! You must network with investors.
As I mentioned, I'm a real estate broker, and I flipped 7 properties. I could do both the wholesaling and flip the property, but I choose only to wholesale. If I do both, my money will be tied up much longer by doing both. If I only wholesale, I can get paid much faster and reinvest those funds and get 3-4 more wholesale deals as the time it will take to do one wholesale deal and a flip.
@Sebastian Marroquin. Thanks for the great feedback! You gave me inside info that I needed to know. I expected to get this insight from an investor or wholesaler, not from an agent! You must network with investors.
As I mentioned, I'm a real estate broker, and I flipped 7 properties. I could do both the wholesaling and flip the property, but I choose only to wholesale. If I do both, my money will be tied up much longer by doing both. If I only wholesale, I can get paid much faster and reinvest those funds and get 3-4 more wholesale deals as the time it will take to do one wholesale deal and a flip.
Thanks for saying that: I am a realtor and investor. I help investors with all aspects of a flip or rental property (from finding the deal, to managing architects or drafters, to managing contractors, permits and the sale). Depending on client's needs and experience.
I know whole-sellers making millions, investor flipper making millions, realtors making millions and also contractors doing the same (I will get there soon :) ) It comes down to your focus, what you like and your systems! Focusing on what the other person is making always comes from lack of deal flow and opportunity (not saying that's you at all). But think about it, the whole seller that cares way too much about how much the flipper is making, is only bc they do not have the volume that they want to have. The ones whole-selling 5 to 10 homes a month for $10k to $50k per deal are happy. The same with the flippers and us Realtors. I catch myself saying that about contractors sometimes, but only because I am not selling 10 homes a month like some of my co-workers. I have grossed up to $80k in one month and that month, being a Realtor was the best ever! :)
I do have investors and myself : looking for homes in San Gabriel Valley (LA county) FYI incase something comes up!
Thanks Josh for your input. I'm a newbie wholesaler, although I've flipped 7 houses and i'm a real estate and mortgage broker. I'm looking to do my first wholesale deal. Let me see if I got this correct: let's assume fmv is 400k. ARV is 560k. repairs 100k. So, 560k x .70 = 392k. 392k - 100k = 292k. This is how much you would pay as a flipper? 102k below fmv? If so, you will be making 102k, instant equity. I've been reading a lot of posts here in BP and some fix n flippers are whining if the wholesaler makes more than 10k on a deal. IMO, this isn't fair. The wholesaler is the one that spent $1,000's and a lot of time finding a deal, not the flipper, yet the flipper thinks it's fair to make 10x as much. what's wrong with this scenario? the flipper can turn around and sell it to another flipper and make 50k-100k. I've seen newbie and novice flippers buy fixers in the MLS at fmv all the time. perhaps I should take out a HML, sell it "as is" in the MLS for fmv. I will make roughly 90k after expenses and I won't have to hide my assignment fee from flippers and whatever else red tape there is. what are your thoughts? BTW, I really appreciate your help.
Yes, because $292k purchase is actually $315k with closing costs and financing, and $100k rehab is actually $150k with overage and holding costs, and sale of $560k is actually $520k with commission and closing costs, so profit is only $55k. I think most wholesalers should just get a real estate license, so instead of trying to get it under contract when they don’t actually intend on closing on it, they can list the property for sale and make a commission.
I'm attempting to find deals out of state to flip to build capital. I would be happy getting $55k profit for Midwest fix and flip (before ordinary income tax). I'm not a wholesaler but a buy and hold investor long term rentals trying to pivot strategies in this market. I'm using a real estate agent for the buying and selling end. I was also using using:
ARV x .70 = Amount- Rehab = Offer Price.
Add in holding costs (HML with 3 months of payments, insurance for 3 months on vacant property) if the renovation doesn't take longer than 3 months. Then closing costs including real estate commission (I'm using an agent since it's OOS) = final offer price
Unless I'm not calculating something correctly, that seems like I would need to put in offers way under and the seller is going to be insulted and I'll never close a deal to flip. I'm confused.