Posted by Brent_IL on July 04, 2003 at 13:05:55:
Although my offers are formula-driven, I’m not a rehabber and this isn’t my formula. Several RE courses suggest using it. I don’t know where it originated, but I’ve read it so often that I believe that repetition has made this the defacto “standard” for apprentice rehabbers. Successful rehab specialists buy for less
Several people I?ve met who do this kind of thing have told me that they have a worthwhile deal when, after deducting all costs of acquisition, holding, repair, refurbishment, and resale, they net an amount of profit equal to the total that they have spent on repairs, including labor. So if they subbed out $20,000 to bring the property to ARV, and had $20,000 left in their pocket after the closing with a new buyer, they said they did O.K.
This example is used when flipping.
$100,000 ? After Repair Value X .70 = $70,000
$2,000 - closing costs
$1,500 - 3 months interest, insurance, and taxes, say $500 a month
$15,000 ? Total repairs
$5,000 ? flip profit
$8,000 ? cost of resale
Your offer price when using this formula would be $38,500.
This implies that for a $5,000 assignment fee you could sell the contract to a rehabber because there is enough room in the deal for his or her profit.
When you?re planning to rehab and hold, you can afford to pay a little more. I used this example in the prior post just to illustrate that one doesn?t have to pay a whole lot more. In an all-cash sale, $500 or $1,000 higher than the next guy may suffice.
Cash sales notwithstanding, I?m still a cheerleader for the buyer-on-terms faction, don?t you know?