Need help with the numbers!!

Bird Dogs, Wholesaling
1

hey guys,

I want to make an offer on a particular property I am working with a motivated seller on.

The seller won’t go less than 36k for his property which is 1284 sq. ft. Right now I am working on the numbers to make a correct offer.

Comps in the area with the same 3/2 style and about the same square footage were sold recently. One that was 1481 sq. ft. sold for $49,000, the other which is 1400 sq. ft. sold for $42,000. The last comp I found sold a year ago for $50,000 with 1560 sq. ft.

I estimated the cost of repairs on this property to be $11,010. That includes new kitchen cabinets, bathroom remodeling, flooring ($2.50/ sq. ft.) and roof repair. Part of the roof was damaged above the garage/carport.

Most reads I have found have been telling me to use the MAO formula. MAO = ARV * 70% - Estimated cost of repairs.

However, when I plug in the numbers for the formula, I get a significantly low number that I’m sure the seller won’t go for.

Can anybody help with these numbers? If I don’t have enough info I can provide. I think this is a great property that I know my buyers will take. Just need help with the offer amount.

Thanks

2

Don’t get yourself all confused with MAO formulas or any other formula for that matter. Keep this in mind, you are a wholesaler, or this is what I’m assuming?? Wholesaling is simple! If you don’t plan on rehabbing the property yourself don’t get yourself caught up in formulas.

Leave the formulas for the rehabbers! This is their job to come in and figure what the repairs on the property may be. They are going to want to come in and evaluate the property anyway.

Your job is to figure out what properties are selling for in the same condition that this one is in, in that particular area.
How will you get that accomplished? Hook up with a realtor in your area so you can penetrate the MLS for access to get the results you are looking for when searching comps.

If comps reveal that this property is selling for 50K in the same condition that this one is in, then you may have a good enough deal where you can create spread big enough for you to profit plus leave your end buyer a piece of the pie as well.

Hope this helps! :smile

3

I agree with MrFlippahouse to a point. You should have a general knowledge of repair costs on a house. Enough so were you can get an idea of what it is going to cost your buyers (rehabbers) when fixing up the place. Sure the rehab costs vary from one person’s opinion to the next, but it’s good to have a ball park.

Getting a realtor to help you comp it compared to other houses in the area in the same condition can get really tricky in my opinion. How exactly do you know that the other house needs a oil tank removed, or has a cracked foundation? You need to have an idea how much those things cost, most realtors will not.

I would say to help you learn, have a few of your buyers walk through the house and see how they come up with their repair estimate. Ask them questions. It won’t take long before you can do it yourself.

That’s my 2cents.

4

So should I just make an offer and get the property under contract, and then get my buyers to help with comps, inspection etc.?

5

Great question SKReel.

This is a challenge always when going into a new area, or starting from scratch.

Here’s two things you could do:

1. Find out who the cash buyers are in your farm area.

You find this out by looking for all the cash sales that have occurred in your farm over the previous 12 months.

Make a list and mail to them. Ask them if they are still buying; what they’ll buy; and what their criteria for buying is.

Once you’ve got an idea of what they want, you start looking for what they’ll buy.

2. Advertise a phantom “cash” property for sale at a grossly obvious discount (everywhere online you can for free).

The first time I ever advertised a phantom house (in the paper) to attract cash buyers, I attracted the biggest cash buyer in my state, and got a mountain of valuable information about what I should look for.

Meantime, you don’t need a bunch of buyers to make this work.

After a while, not only will you’ll discover who’s actually ready, willing, and able to buy, but you’ll know exactly what to look for, and how much to pay.

Hope that helps.

6

@Javipa

Yes I’ve actually done what you’ve suggested. I have a buyers list, and once I get this under contract I’m going to phantom advertise through craigslist.

The seller of this property is requesting a proof of funds however. Would that cause me to pay him now? I figured I would just pay him earnest money ($100) and give it to the title company until the day of closing. I would need the cash from my buyer. Help on this one??

7

[Sorry for the long post here]

Few motivated sellers (that I want to deal with) ask for proof of funds.

Except that you obviously have not informed this seller that you’re a wholesaler/flipper/rehabber. Why not?

Meantime, this guy thinks he can weed out the tire-kickers this way.

You know how easy POF’s are to manufacture?

Evidently, this guy also believes he’s got options (and time).

So, now I’m suspicious that this isn’t the deal you think it’s cracked up to be.

I could be wrong.

Meantime, if I didn’t want to provide a POF, I might explain to the seller that I was an investor “with several potential partners for this deal (which would make it tough to get a proof of funds letter, since I don’t know which partners will want to finance this deal), and until I can negotiate something with you that is profitable enough for me to present to one of my partner(s), the only thing I’m prepared to do is offer an earnest deposit.”

Or I might say…

"I don’t provide proof of funds letters. Too much of my personal information is revealed on those, and the ones where my personal information is not revealed, defeats the purpose of a POF.

So, since I’m not interested in revealing my personal information to you, I will just buy from a seller that doesn’t need that information. Or would you prefer to negotiate a ‘real deal’ today?"

That might sound a tad snarky, but frankly, the only sellers that would actually need a POF, are banks. In that case, all the other buyers are going to cough up what the bank wants.

But this isn’t a bank.

Frankly, again, I’m hesitant to deal with private sellers who start off with a demand for a proof of funds. It just goes downhill from there. It places me in a position of proving not only the funds, but myself.

I will show them a summary financial statement, if/when that helps me.

So, another answer to this might be to ignore the seller’s POF request altogether; make your offer the way you want; under the terms you’re prepared to buy; and then wait for the seller to make a counter with/without the POF demand.

Now, the seller might be reasonable in asking you to prove funds. However, that’s AFTER you have a bonafide, enforceable contract signed.

I ask, “Why let the seller know you’ve got $4.2M in the bank, just before you try to negotiate a deal?”

Isn’t that stupid?

You want the seller to think, that you’re scraping bottom to come up with the money for your final offer. That only makes sense.

Once you’ve got the offer signed, you pitch it to your buyers list with the stipulation that they fund your earnest/binder deposit, and show POF.

BTW, if you’re gonna assign this deal, then you’ll want your non-refundable assignment fee paid, up front, which should more than cover the earnest deposit, in the event the buyer flakes out. Never mind the bogus POF your buyer supplied you and the seller…! :beer

Hope that helps.

8

@Javipa Thank You! This is what I was looking for. Thanks a lot.