Real Estate Agent · USA, FL · Member since 2022 · 42 posts · 20 votes
Hi,
Which formula do you typically use to calculate the maximum allowable offer? I've seen there's 70% of the ARV minus the rehab costs, and I've also seen ARV minus the rehab cost, fixed costs, and desired profit.
Which one is the best to use and is there another formula out there that's better?
@Elie MerisierI think you have to play around with both options. The market in many places has gotten competitive enough that it can be hard (but not impossible) to find 70% deals. But, when it's me, I try to start with the 70-75% ARV model. You also have to decide if you are comfortable going with wholesalers, because that is going to be the most likely way you find a deal with those kinds of margin (vs. MLS). If you decide to do it the 2nd way, make sure your profit goal is padded enough so that if costs go over, you are still making a profit.
@Elie Merisier yeah, this is the type of question which depends on answering another question - what do you want? Meaning, what's your strategy on the property? Is it a flip or rental? If you are flipping, what do you want your profit to be? If you are keeping, how much out of pocket do you want? And then there's this other element - what does your lender say they will lend to you? If your lender will lend 70% then that would be a different answer than if they would lend you 75%. And then as mentioned above, what can you actually execute with? I mean, I WANT to come out of pocket and make $100,000...but if that's not possible then I need to adjust my expectations.
You are certainly on the right track but just need a little more details to know for sure.