I used the formula and came up with an offer of $193k and she said she couldn’t take less than $203k. I’d say my ARV is high end. Well kept home, just outdated. Needs updated kitchen…and rooms need paint and carpet.
I don’t want to get trigger happy and go back to her if it wouldn’t leave enough spread for the buyer I assign this to.
Is $2,000 a fair number to estimate to paint and carpet an average sized room?
Thanks!
First, I would never use the high end for ARV when I am buying. I sure would consider using it if I were selling.
If I were to tackle the project, my MAO would be in the neighborhood of $148,750. You need to factor in a lot more costs (acquisition, holding, cost-overruns, sales, concessions) so your profit is a lot less than $48k.
If I had a retail buyer in my back pocket who wanted find a nice house, put in some sweat equity, and have some equity left over, I’d consider a higher offer than $148k and assign it to the retail buyer.
There is no mortgage on this house. But it sounds like, as constituted, this doesn’t represent a good deal to you, with $40k or so left over. Thanks…that’s the kind of feedback I need in evaluating these.
Thanks,
i agree with turborocket. that’s not a good deal. technically there is no $40k left over. why? you may or may not get the high end on resale. you may need to discount it to sell quickly. the holding costs could easily exceed your expectations further dipping into the $40k “left” and let’s not forget the contractors. the repairs could hose your budget.
the safest way to construct offers is to use MAO (maximum allowable offer)
MAO = ARV * .7 - repairs
in english it means the max offer is 70% of the ARV minus repairs. most investors buy using this formula.
Thanks.
I used ARV*.8 because the value was in upper 200’s, but you seem to be saying that most investors like .7 to make it a good deal to them. Good to know, thanks for the input. That’s why I didn’t get it under contract…it looked a little slim to me…when I wholesale a deal, I want to know it is without doubt a great deal.
Thanks!
ah, here’s the key. if you can get it under contract at 70%, anything over that is your profit. as a wholesaler i like to build profit in from the beginning. in my area (DC/Baltimore area) most rehabbers buy at 70% ARV minus repairs, so my goal is to get it under contract for 60-65% ARV minus repairs. for turnkey rentals, i can buy at a higher LTV as the properties don’t need that much work.
On houses worth more than, say, $200K, I would not be so rigid on the 70%. I have done a number of deals with nice houses where my cost was 80%, and I made money.
Granted, my margin was “only” 10% after costs, but I’ll take 10% on a $250,000 house over 20% on a $70,000 house any day of the week.
Yes, your numbers need to be really accurate, because that 10% can evaporate quickly if they are not, but no one said it’s easy.
A suggestion - go over your Repairs carefully. Most rehabbers estimate too low and that always cuts into your profit. Plus, like others have said - there are holding costs, taxes, commissions, etc. that must always be added into your calcs.