I made a commitment to myself that I want to get paid $10,000. That is where I start my figures.
Most investors/retailers want to make at least $25,000 because they have more hassles than me. That is where I start my figures for their part of the deal. If I don’t include their needs in the equation than I won’t be able to make an interesting and valuable offer to them later on.
Most Acceptable Offer = 70% x FMV - (rehab + holding costs)–FMV = Fair Market Value
You just used ARV x 30% instead. Quite similar.
Just remember that the $40,000 Figure does NOT include investor’s holding costs, which might be as high as ??? or only several thousand. That is for you to figure out. Part of your Due Diligence.
In terms of keeping it for yourself, I would use the same formula other than eliminate the $10,000 first line profit. As with any deal, proceed with attention to all the details and Due Diligence is mandatory!!!
I am not able to give you numbers because they are just too scattered around this country but I can give you categories.
These are expenses most homeowners have to pay in order to just maintain a property. Electricity, telephone?, property taxes, homeowners insurance, heat (if needed), garbage removal?, snowplowing?, mortgage, water/septic if in town, lawnmowing/yard work. My husband and I brainstormed this list. Does this give you a general idea of what I mean by Holding Costs? Now it is up to you to do some homework on those costs in your area.
You multiply those costs by the number of months you estimate it will take to complete the repairs and that gives you the approximate number to add to your formula.
You said previous, In terms of keeping that property myself , I would use the same formula other than eliminate the $10,000 first line profit
That’s the only thing I would eliminate is the 10k coming to me, is that right? Now where would the extra 10k go, to the investor or into the purchase price for the seller?
That’s a great question!! I did forget to tell you to put that into your pot of money as the retailer. I have worked, as a volunteer, on several renovation projects at my church. Not a single one of them came in at budget due to circumstances beyond our control. That extra 10,000 does give you more flexibility when selling the property or when buying the property in the beginning. as well.
The final question to ask yourself is "How much money do I want to make on this deal? How much time and energy will this project take and will my time be better spent as a rehab project manager or a wholesaler?
You mean put that 10k into the pot of money as the retailer, just in case something else comes up?. I’d also like you to explain what you meant by, That extra 10,000 does give you more flexibility when selling the property or when buying the property in the beginning
Sometime sellers just really want more than you are offering or buyers want to pay less. Then the real art of negotiating begins! You have money built into your estimates that will allow you to earn $25,000 to $35,000. Each deal will be different; some will go smoothly and you will earn your $35,000. Others will require more negotiations and you may only profit $25,000 as the retailer.
Sounds like you did some additional work on the rehabbing and came up with a much lower figure. If you feel that your holding costs won’t eat up your $34,500, then that looks like a fun deal to be a part of. Don’t forget to do your title search well before your closiing date; would be a bad thing to hear that there is a title issue as you are about to collect your well-earned check!!