Ex-Grow House For Sale, purchase price?

             I have a home I have found, in a good neighborhood, the house was used as a grow op. The kitchen, bathrooms have been torn out, no cabinets no faucets etc. Just pipes sticking out of ground in kitchen. Few peices of drywall has been removed etc

My question is, how do you come up with an offer on such a home?
After repairs, resale value of the home in this area is $342,330 based on comp reports.
Asking price from the bank is $270,000 , Still to high
What would be a worth while price to consider picking this one up, either for a flip or a cash flow property? Inspection has been done, and their is a enviromental report that comes with the house, stating it is perfectley safe to live in.

You need to know your cost of repairs before you can make a decent offer. ARV X .70 - cost of repairs - flip fee if flipping.

Cost of repairs is 30-35k max

Actually, the formula I used before is not the one Vena Jones-Cox teaches to use when the house is worth this much. She would say the following:

x .8


So, let’s use 340k as ARV

x .8

-35k repairs


  • 40k profit

197k is Maximum Allowable offer. Higher if you want less profit.

thanks, I had figured I would offer 195k at the most, so I was pretty close.

Where are you getting a .8 rehab loan.

most I have found is 70% ARV.

you don’t figure in carry costs, purchase and sales costs, insurance, etc.

Do you not use those in your calculations?

The loan should still work after taking out money for profit, etc. it ends up being a .7 or less loan. Vena just uses this because the .7 calculation would end up being such a low offer on a really expensive house, that you probably wouldn’t get it accepted. And the carrying costs, etc. should be out of the .3 that you’ve already discounted.

Vena is big on wholesaling and building up cash before rehabbing, so that you have some cash reserves for those extras. That way your offers can be competitive.

I have calculated Aquisition expenses, rehab costs, holding costs, hedge expenses, and the sales expenses (realtor), I didnt work it in since it a larger list, if you would like to see that, let me know. I was looking for the basic formula, with a 30-35k rehab and 125,000 margin, I wouldnt hesitate on other expenses, largest expense is the rehab.

I guess in my area that price is somewhat the bottom of the market.

I would think, on a higher price property, I would want more spread as the buyer pool is smaller and so the carrying costs will likely by higher than anticipated.

It’s hard to say with the market. I see your point but dont’ think I would fly with .8 in this market.

Good luck on it.

I agree with that, and have been thinking about it. It would probably make more sense to rent the house out after rehab, and use it as income cash flow? this way its pretty much brank new inside, in very nice neighborhood, with a luxurious feel. After a while I could turn around and sell it, but, (there’s always a but shakes fist) all this is if the bank, who ownes the house now, is willing to accept my 190k offer, from there 270k asking price. Im not getting my hopes to high on this one, but its always good to have a scenerio set for such a thing.

Most rehab lender will do 65 to 80 ARV( After Repair Value)

Here is the calculation:

Offer= (ARV x 72%) - ( Repairs + Holding + Closing cost )
Note: if you want low closing or no closing cost will require higher rate.

530,000( ARV) X 72%= 381,600 is enough to buy $380,000 short sale but not enough to do repair of 38,000. ( see below) That 38,000 down is your repair.

10,000+18,000( example: 386,000@ 10% = 38,600 divide by 12 months. Hold for 6 months $3216 IO X 6 months =$ 19,299) +Closing cost $10,000 = 38,0000

What if the property sit longer. Where is your reserve to cover your ass.

381,600 - 38,000 (10,000+18,000+ 10,000) = 343,600 Offer

Some lender max at 80% due to borrower cash. If you had gotten a higher % of ARV, you would not have to put the cash.That is leverage. the 38,000 I would keep just as emergency to cover my ass if the property will not move. Pad the repair alittle.You pull the wall, sudddenly you have water damage behind the wall.

530,000 -418,000( 380,000 to buy short sale + 38,000- Repairs ) = $112,000 profit.

Put the profit you want at 25,000 or 50,000. minimum. You decide.