Hi everyone,
How to you all estimate repair costs as part of your formula to calculate your maximum offer price? Are there any programs you all use to do this faster and more efficient?
If you don’t have access to MLS, you can make use of the free sites like Zillow, Trulia and Redfin. You’ll probably hear from most people that these sites are horrible but I have a trick I use that has worked well for me. I use it along public records search sites.
I used MLS but for markets I work on that I don’t have access to it, I make do with these websites. They work just as well. In order to determine ARV for a property, look for properties in the area that has recently been sold. Usually, you’d like for them to be a quarter of a mile to half a mile from the property you have. The closer, the better.
Depending where you’re in, say if you’re in a large metropolitan city, you don’t want those comparables to be over a quarter of a mile. If you’re in a world city, you don’t want them to be over half a mile. That’s the rule of thumb I follow.
Once you search the address of your property on Zillow, you will see a zestimate but you don’t want to pay attention to that. It’s most often wrong. I don’t know where they get it from. On some markets I work on, it’s pretty close but on some, it’s really far off. Take note that what you’ll see is the contract price and not the wholesale price.
Then, go ahead and check out sales similar to the property. There’s a link that you can find on the same page. When looking for comps, you want to make sure that they have the same amount of bedrooms, bathrooms, and square footage. Also depending on the area, you’d want to make sure they’re built around the same time as well.
Based on the sales of the similar properties, you can pretty much tell what the ARV is. In order to verify it, I go into the public records search. You can go to Google and type in Real Estate Assessor’s Office for your city. Look up your property address and what I do is I search by block. it will give me properties that have been sold on that particular block. Sometimes, you’d like to see older comps so you can see how much people paid awhile ago. Once you have verified your ARV, you can use Rehab Valuator which is a free software. They also have a premium version. This software works great. It helps me come up with a ballpark figure.
This is the formula for MAO (Maximum Allowable Offer)
ARV * 60% - repair cost - wholesale profit = MAO.
This is how much you can offer to the seller. You don’t even have to do that calculation yourself. You can just download the software, type your ARV, type the maximum percentage of the ARV that your buyer will pay. For repair cost, I usually use $30,000. Depending on the area and the square footage, you can adjust it. If it’s a bigger property, the repair cost is a little more.
You can play around with it, adjust factors like the profit you’d like to make and see what you come up with.
I hope this helps. :biggrin
MAO check all Ron Legrand products and buy anything on Robyn Thompson that you can. I’ve seen her in person about 5 times and have been to her bootcamps. I would recommend hanging around top rehabbers in your area or pay a top contractor to come out to a few houses for 30 minutes for a rough estimate.