I’m not sure where to post this question but here it is.
I’ve read on hear that on a property that you are going to flipp you should offer 70% of FMV. Is this offered use in just about every case. The reason I ask is, I have my realtor making appt’s for us to go see 4 houses that need work that I would flip. I also asked her to run so comps and that I’m looking to purchase at 70% of FMV.
Am I on track?
Thanks
auggflo
Sounds like you are. There are alot of formulas out there that people use. I use this one…
ARV $100,000
70% is 70,000
70,000 - repairs, holding costs, etc.
70,000 - 15,000
55,000 <— Maximum allowable offer
On a deal like this I would offer 48,000 to start and then see what happens. From my experience most bank owned properties go for around 70% of asking price.
I advise getting a formula set up and then sticking by it, no exceptions. Hope this helped!
Jared :biglaugh:
Hi,
Would it be at all feasible to deter from this formula in cases where the property is so desirable; Ex. the location is so good that you offer a higher price. You said “no exceptions”, have you ever bought a place on the fact that you new it was in an amazing area and could truly make a profit?
aubs129,
You have to develop a formula that works for you and your area and stick with it. When you start moving away from the formula, then you start moving away from profit. I’ve seen many investors that paid more than their formula allowed because “it was in an amazing area and could truly make a profit.” Turns out, they lost their profit, when they bid more than they should have.
Raj
Don’t fall in love with a property, fall in love with the process. If it will make money at that higher price, then it will make money at your formula price also.
I did a test before I got into investing, to see if the advice I was given was right. I started to watch to see what properties came onto the market. In the first month I came up with a couple of too good to be true deals. I was really tempted to do the deals althought I was not ready. I did not buy them. To my dismay, deals like them come up a lot. Not everyweek, but enough that I can stay busy doing them. If they won’t come down to your price neignborhood, then it is not the deal for you, just do the next deal.
Don’t add unneccessary risk by paying too much. Remember the profit is made when you buy, and realized when you sell. If you don’t buy it right, you can’t make it up.
Roger and Bluemoon are right on this one. That’s what comps are for. If a house is so desirable it will show up in the comps. If I am going to make it is this business I need to stick to my guns, but at the same time every once in a while you need to back up and make sure things are working. :guns:
I am fairly new to the game. I have a rental property now and I also flipped a property in January that I picked up on the courthouse steps and made about $40,000 (First Timers Luck) ;D Questions: How is Holding Costs determined? And besides Repairs, what other costs should I add to my equation?
Welcome to the forum, dlmcgill.
Holding costs would be the mortgage payments that you will pay for the time that you expect to be in posession of the property. This includes taxes and insurance. Holding costs also include utilities and lawn care during this time.
It’s also good to add a buffer for unforseen repairs.
Thx for the info Travis! I will take that under consideration for this deal I got brewing now 
I love that Travis added a buffer for unforeseen repairs. You truly never know when a water heater is going to go out on you or a storm comes through and causes some damage.
And wtg Bluemoon on not falling in love the the property; fall in love with the process.
You’ve received, IMHO, very sound advice on your thread. I wish you the best of luck in starting your journey. Get ready, it’s fun and don’t let the small stuff stress you out, there will be bigger things that need your energy. I’ve found that each deal is different and I am forever looking back into my education via the school of hard knocks to solve a problem (or posting here and getting great advice).
<<You truly never know when a water heater is going to go out on you or a storm comes through and causes some damage. >>
LOL…you’ve been reading my mail or tapping my phone line! I lost two water heaters the same day about two weeks ago!
Keith
I’d love nothing more than to say I read your mail, it would have been cheaper. I too had a water heater go – with a carpet replacement to go on top LOL!
Hello:
I realize this post is pretty old. However, I have a question. Is it feasible to offer 90% FMV in an extremely hot market?
I’m considering offering 90% on a property in Baltimore. The FMV is 250k-45k (repairs and holding costs). That leaves 205k. I plan on offering 190k. Plus houses in this community are selling no less than 280k. The seller wants 219k as is. Sounds like a winner?
PS - I plan on flipping the property.
Thanks
dlmcgill
I have a question to add to this one myself… When figuring holding costs I figure the mortgage payment as 1% of the mortgage amount (just to be safe) and then add 10% of that amount as a buffer for misc expenses… Is there a better way to figure it than that or is that close enough?
TIA
Red
Redtigress,
Your figuring holding costs, 1% mort + 10%.
I would double that 1% figure. (just to be safe) What ever you come up with always add to it. As you go you will figure what makes best sense. For me I always seem to end up in the $20k range for repairs on the homes I work with. To be safe I ad 50% to that estimate to be $30k. I pay cash for homes so I don’t have the other costs but I always always always double any estimate for carrying costs. It’s better to be safe than sorry.
dlmcgill: It all depends on your market. As I said above to Red, always figure high on your estimates. Come up with a formula that works for you and stick to that at all costs. Don’t change it because you think you might be able to sell this home quick in this lovely little neighborhood. If you always plan for the worst it will be hard to be disappointed.
I do it this way:
I look at it from this point.
Asking price- repair cost, commission fees, transfer taxes, title work, misc closing fees, insurance and any other carrying costs + my 10% take on the deal. Add/subtract all that and come up with your offering price. It usually equals in my case anywhere from 65%-75% under what the bank is asking depending on the condition.
If you have a mortgage you will have to subtract that cost as well including closing fees etc.
Hello:
I realize this post is pretty old. However, I have a question. Is it feasible to offer 90% FMV in an extremely hot market?
I’m considering offering 90% on a property in Baltimore. The FMV is 250k-45k (repairs and holding costs). That leaves 205k. I plan on offering 190k. Plus houses in this community are selling no less than 280k. The seller wants 219k as is. Sounds like a winner?
PS - I plan on flipping the property.
dlmcgill:
First, I think that either you or I am a little confused. Is the Fair Market Value (FMV) $250K or $280K (since nothing is selling less than that)? At $280K, a $196K offer is 70% of FMV
Second, if $250K is the FMV, then at $190K purchase, you only have $15K to work with on holding costs, closing costs, “oops” costs, etc. A 6% agent commission eats up that $15K on a $250K resale. So unless your market is increasing in value at 10% a month, then no, it’s still not wise to pay 90%. Besides, what happens if the market cools?
Red,
Whatever works for you is the most important thing. However, you can get much closer on holding costs with no more time invested. Find a mortgage rate card (call a mortgage company or REALTOR. Many have the pull cards available, and some even have them on the backs of their business cards) and keep it handy. If you’re going to be paying $50K for a property, then all you have to do is look on the card for your monthly payment based on your expected rate.
Example: I know that I can get my loans at 8% or less. I also know that I can add 1% if the property is out of the city limits and 2% if it’s in the limits and I’ll get a very close number to what my actual payment will be based on purchase price.
Hope it helps,
Raj
Hi dkeith:
Thanks for your response. I thought it was the FMV - Repairs - Holding Costs - % of profit? But maybe I am wrong. The house is listed under market and I plan to offer between 29k - 39k below that. With 29k below the asking price being my ceiling. I plan to start with 39K off of the asking price and wait to see what happens. I am definitely not a desperate buyer
The house has been on the market close to one year. I figure I start low and wait him out.
Thanks again
dlmcgill
Your welcome dl,
I personally use list price for my calculations not FMV. Really what it is priced at in most cases is close to FMV possibly slightly under. As far as what you could sell it for in the end, I would be very conservative with that as well. Allow for reductions in price etc if necessary. I usually take FMV (what I will list at) and subtract another 10% for what it will actually sell for. That’s the market up here though and that’s not to say that every deal I do ends up selling for less than 10% of asking price. It varies. You can always assume a buyer will come in at least 5% under your asking price. Again, that’s the market here in SE Michigan. We are not seeing homes selling for more than asking price unless the buyer is rolling their closing costs/down payment in to the mortgage. Which is a whole other issue.
I am a little confused like roger J is FMV 250 or 280?
I will assume it’s priced at 250. and worth 280?
At 250k 70% is 175k. That would give you room to play or come up if necessary and cover costs.
I am always very conservative…always. I’d rather be pleasantly surprised than in trouble.
Hi dkeith and rj:
I believe I have confused myself ;D
Any ways, this is the deal. FMV = 280k.
I took 90% of that, which comes to 252k (Assuming my math is correct).
Then I substracted Repairs, Holding Costs, Plus about 10%, which comes to about 180K - 190k (which will be the range of my offer).
I believe that I can sell the property for at least 320k. So does my realtor, who grew up in that area and his father is an appraiser and lives around the corner. Also, some are listed for 342k now (I know that does not mean they’re going to get that) But I believe it will sell ARV for 320k.
What do you guys think of that scenario?
Thanks again
dlmcgill
So essentially you are going in at 20% under asking price subtracting your repairs and costs.
It’s all up to you. I still say go in low. If you feel it is safe to come up then that is a judgement call you will have to make.
I would not say that FMV is 280K that is not accurate. That is the list price.
Your fair market value you say is really 320K. There is a difference.
This is where having a realtor you trust comes in to play. Just because he grew up in an area does not mean anything. He has already demonstrated an emotional tie to the area. That’s not good. What do the numbers say? That’s what you need to rely on. Have him do a full blown market analysis print it out and give it to you. Then get a second opinion. If the numbers match great, you can make your decision from there.