OK, First let me say thanks to all of you who have contributed and made this forum an awesome learning source for REI.
Details:
asking price - $229,000
cost of repairs - $20,000 - $25,000
ARV - $300,000 - $325,000
Question: With these numbers what would be your maximum offer to seller? If more info is needed please let me know. I have my real estate agent working now to write an offer, but I want to be sure I am comfortable with the price.
Thanks in advance
David
this is how it’s going down. Please chime in if you see something that could have been improved or overlooked.
asking price - $229,000
offered - $229,000 w/ $10,000 cash to buyeer at closing
the house needs about $20k-$25k to rehab and bring to market condition. Comps less than 1/4 mile are at $300k - $325k, if I sell at $300k I should clear $36k after all fee’s and expenses. The house itself is a 2bd/1ba 960sqft. home in an area where alot of development is taking place and appreciation has been 15-20% for 2+ years. My intent is to flip, I would love to hold but it’s next to impossible to cash flow here in Sac.
Any thoughts?
How long has it been on the market? Why offer full asking price?
According to my deal calculator, your spread isn’t as much as you think it is…
$229,000 Purchase price of rehab
$25,000 cost of repairs
$9,415 (HML Loan) 14% of loan/12 x 3 # of mos held
$12,700 5% Point(s) for loan origination fee
$2,290 Other purchase fees=appraisal, title cost, termite report, comps,etc
$3,000 Holding cost= # mos x (taxes, insurance, utilities, etc.) (1% of ARV)
$2,290 Hedge factor (1% of PP)
$15,000 Sale fees, ads (increase % if using realtor!) (5% of ARV)
$298,695 Total cost of project (Total line 25 through 31)
$300,000 ARV (After Repair Value) Low end (Enter ARV per local comps)
$34,350 15% goal to make it profitable
$1,305 Profit
I know that all of these fees may not apply to you, but I’d ask for a lower price. Just my opinion - good luck!
If the high end of repairs is doen by an appraiser to repair these or yourself quoting it at 25K now double it for icitedentals unapparent to the visible obvious.
The seller knows the repairs and unless they are a contractor dont know the costs to repair it. You can say it is 25K but there could be things you miss. They know your not going to offer the asking price since it needs repairs. So start at the 179-189K that double your estimated repairs cost from the asking price. That is low and could be insulting but if they are insulted and say NO right away then go right back at it BUT do it QUICKLY. You will find the price will be lower found this way than going to their price. They want out and you can buy any house they only have ONE to sel you.
Negotiate with the broker if he is getting fees at front end(buying) and fees and back end (selling) either get him to come down or the seller pays at the front end instead of giving you a cash allowance for paint and carpet. Get the broker to do some leg work. Show and give comparables in area. Not ones listed but SOLD. What were the SOLD ones ASKING? What were they sold in days on market? Get school information and crime rates to help back up your justification for going in so lowball at the start. You arent buying the house…you are selling your service of buying the house which needs repairs and you could buy any one. Make the broker sell you not just on the price and potential. You will also find that if these are not good to help justify your buying price than they will definitely help you with selling it as if they are good schools it wont bring price down but will help you sell it to the next buyer.
Why using HML?
In fact why use a broker to sell it if you market it yourself and save those fees? FSBO …BUY NOW and get a NEW COMPUTER AND BIG SCREEN TV!!! or soemthing along those lines. A week in Mexico(somewhere) at an all inclusive club put this is your ad and hire a secretary as it wont be long if put at mid range of the area asking and you offer that.
David,
You need to get this house for no more than 200,000. This will ensure that you’ll get a reasonable profit. Like I said before, you may not have all those fees that I listed above, but wouldn’t it be better if you had more profit than anticipated or much less profit than anticipated?
I used a great spreadsheet program that was developed by Rob @ DHLC Investments, Inc. I’ve attached it here for you to use on this and future properties. If the seller balks at your offer price, then SHOW HIM the spreadsheet. Explain to him how your costs will break down and show him that your net profit would be only $1,000 if the price stays at $229k. Use the spreadsheet as a negotiating tool.
By using this spreadsheet, I avoided paying too much for a rehab that I would have only profited about $1,500 (I thought I was going to make $12k before using the spreadsheet). I passed on that one, and I’m glad I did!
Whatever decision you make, good luck with it!
http://www.dhlc.com/deal evaluator.xls
thanks for all the responses so quickly. The first offer I made on the house was Friday afternoon and I still haven’t heard anything (probably a good thing). I gave the realtor until Sat. 5pm to notify me or my realtor and nothing so far. If we do get a call I will still be interested, only at a much lower price. The spreadsheet that was provided is useful, although I think the fee’s are a little on the high side (which is fine as I would want to be on the high side when figuring). I plan to drop my offer to $200k - $205k with credit to buyer for closing costs. I read someplace on here that a good reference point is 70% of ARV minus costs, that would put me at $210k minus costs.
Another question I had is how are people finding money for their rehabs? I have capital to use for rehabbing, but I don’t want to use it if I don’t have to.
Hi David,
In the spreadsheet it calculates for a Hard Money Loan, with high interest-only payments for the average three months. DHLC is a HML, and there are many others out there that give hard money loans. Check the “Financing, Hard Money” forum on this website to learn more about HMLs. They are yet another tool that investors use to make rehabbing as painless as possible. You could always go the traditional loan method, but most lenders require 20% down minimum.
HMLs also usually can close much quicker than traditional lenders, getting the money to the seller much quicker. This is good if the seller is motivated by a quick payoff.
Good luck, and let this forum know how your progress goes - I’d sure like to know how it all turns out!