So my wife and I are looking at our first deal and could use some input. List price is 76,400; AVR is $140,000. House is clean and in need of very little repairs. Max $5,000. Small kitchen needs caninets and countertops and then a few cosmetic things.
We offered $82,600 and the next day we were told to give our highest and best by tomorrow at noon. Feel like I am competing against myself. We could have it on the market within 2 weeks of closing.
70% rule would be $93,000. (140,000 * .7 = $98,000 - $5,000 = $93,000). Max offer of 93,000. Financing and soft cost are approx. $10,000 so our profit would be approx. $32,000 (140,000 - 98,000 - 10,000).
We may be bidding against someone who will live there and I fear a 93,000 bid will not get it done. Because there is so little work should work to do should I consider breaking the "rule and going higher?
Bottom line. If we bid $106,000 We make 20,000 which we would be happy with for 2 weeks work. Are we out of our minds to overbid the asking by $30,000?
Looking forward to a few comments.
I don't know your market so keep that in mind with my comments. I have yet to ever find a fix and flip that only needed $5k. That, along with how deep you inspected this home to find the "hidden repairs needed", and how accurate your ARV is would be my initial concerns. Next, your market, whatbis the average DOM for homes in this area at that exit price Level? If it is higher than average, then breaking the rule at this price level could be another problem.
That all said, the ask price is often irrelevant, the numbers tell the true story. Some agents list homes well undervmarket to build interest and a bidding war. Some over price homes. You need to know what is going on here. Can you have another party call the list agent, ask how many offers they have and when the final call for offers will be? Any info given can arm you with some details for your negotiations.
Also, are deals with these numbers very hard, hard, or easy to come by in your area? That should also weigh in.
The ARV sounds off. You don't take a $76K house and add $5K and suddenly it's a $140K house.
If the ARV is off then the whole analysis doesn't work.
Thanks for the comments . . .
@christopher phillips My realtor sold an identical house on next street over 8 weeks ago for 131,000 but it needed updates a roof and Windows. I am pretty confident in that AVR. This house has all of that already done. Other comps we in low 140s
It is a bank property and I think it was just listed way too low.
@Will Bernard deals this easy are not common. Typical is buy for 80k put in 25-30k and sell for 150k.
Final call for offers is tomorrow at noon.
Bank owned properties typically don't need just $5k either and unless the list agent for the bank is a complete idiot, not sure why they would listbitbso low othervthan to create a massive bidding war similar to an auction.
Based on your comments, if you are confident of the $140k and to be safe, let's figure $10k rehab, then you could pay $90k, plus $10k rehab and be at 71.4% of $140k ARV. If this will sell fast at that price, you have a deal, go for it.
Let us know what you decide and how it turns out.
The info above is not to be construed as legal, tax, or investment advice, it is only my personal opinion.
One other quick note, I just noticed you stated your financing and soft costs were $10k. Can you itemize that as it seems low. 5% RE agent commissions is $7k, purchase closing costs plus sell closing costs still need to be factored, plus interest, taxes, insurance, utilities. Seems like more than $10k to me, none the less, at just over 70% deal, you still have a decent base hit for margin.
Don't forget to add in costs like the realtors cut to sell it on the other side. Don't fall in love with it either. If the bid gets so high that you won't make enough money then you need to walk away from it. I just lost a bid this week but it made no since to bid any higher. You're right. If someone is going to buy it and move in it will be hard to beat them because they aren't trying to make money on the deal.
The "70% Rule" is NOT set in stone. It's a rule-of-thumb. Treat each deal on its own merits. Take your OWN circumstances and goals into full account, together with the scarcity of this sort of discounted list price.
Will it matter to you if someone gets it for just $1k more than what your "highest and best" might be?
ie. Would you then say in frustration: "if only I had bid $2k higher, WE would have won it"?
In which case, it'll be no good complaining here, right? (The bank has ASKED for your highest and best!) Good luck...
My advice. Analyze every investment two ways:
1). How would a real estate investor look at the deal
2). How would a typical home buyer look at the home to buy.
95% of realtors are pricing based upon #2 above. Think of it in those terms (unless you know that the listing agent has an investor slant to their mindset) and then lay your investor scenarios over top.
What I find in my market are 95% of realtors don't understand what it costs to rehab a property and also don't have the sense for how to talk a buyer through this kind of purchase. Simple as it seems. Therefore it comes down to how competitive your investor competition is in your area. If u really want the property you may be willing to profit more/less than another deal.
I have bought over 40 deals like this and I don't suggest letting emotions get in your way (not saying you are....).
Oh yes. I am an investor of 21 years and licensed Realtor / Owner for past 3 years. It's insightful wearing both hats.
@Brent Coombs you nailed it on the head. If I find out that I bid 1,000 too low then I will be frustrated. On the other hand if I get it I'll be like, "Ouch, I over bid". LOL and who said this wouldn't be fun! There is definitely emotion involved here but it isn't the kind that is driving me to get the house at any cost. The process of highest and best is what is driving me crazy and unless the winning bid is much higher than what we end up bidding, what ever happens I know I'll think I should have bid either a bit more or a bit less.
All the input is great. I agree with @Will Barnard that my soft costs may be a touch low and I need to check DOM. Financing is with HELOC and those costs will be about $500 per month. So now we have closing cost on the purchase, utilities & insurance left. Depending on how long it takes to sell my estimate could be low.
If this house was listed for $95K I would have offered full price but since it was listed for $76,400 it is bizarre to me to bid so much over listing. Of course there is the whole, "Does someone know something I don't." scenario too.
We have to make a decision later today so I'll update the thread on how it goes.
Thanks and enjoy the day . . . it is beautiful here in Ohio.
Sooo . . . we offered 101,100 which was a whopping $24,700 over asking and then crossed our fingers. Yesterday we were informed that we got the property. The next closest bid was $5,000 lower which made be feel that I had not paid too much. We are excited to get going on this. Their may be a delay in the closing as this is a VA their is some issue with getting the property transferred from the homeowner to the VA before it can get transferred to me.
I'll update once we get the property and get at the rehab.
If the numbers make sense run with it ... I once lost a deal, but that place went for something like 150 over asking lol.