When making offers on properties to flip, it is important to have a good system. I believe that you should be able to quickly figure out your offer range, make lots of offers, and then do thorough due diligence once a property is under contract.
The 3 things you need for getting an offer price for a real estate flip are:
- ARV or FMV – These stand for After Repair Value or Future Market Value.
- Rehab estimate – Get a ballpark rehab estimate based on a walk through, don’t bother with bids yet just a conservative ballpark estimate.
- Confirm it is a decent area – Confirm crime is not an issue, the whole street is not in foreclosure or vacant, and the number of sold comps is close to or higher than the number of for sale properties.
Now, an agent that is good at rehabs and working with investors should be able to provide this information. All agents can pull comps and give your ARV or FMV. You may want to have your contractor do the rehab estimates and if necessary make it worth their time. Once you get these 3 items, your formula is simple. Your offer range should be 50-70% LTV minus rehab.
ARV * 50% – rehab
ARV * 70% – rehab
So if ARV is 100K and rehab is 20K your formula looks like this:
100K * 50% – 20K = 30K
100K * 70% – 20K = 50K
Your offer range is 30-50K. This system is quick, simple and effective. You can delegate most or all of the research then you can focus on finding more prospects. This has worked time and time again. How do you come up with your offer range?
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