Posted by Matthew on July 27, 2007 at 08:35:41:
David-
I can only offer that being able to callout a number / price on a home is one of experience.I have been doing it for a few years(10+).You can get better by making bids,getting to know the market of interest and who operates in it is also a key to getting the numbers to work.
Looking for more input - Posted by David C. Cooper
Posted by David C. Cooper on July 26, 2007 at 15:11:18:
I wanted to get some more input on a deal I posted about a week ago and a few others I’m looking at. I’m hoping one of these can be my first deal.
I used ARV (after repair value) x 70% - repair costs to figure my maximum purchase price. It turns out the numbers are so big it looks like I could even raise my max. price and still have tons of room for profit.
Being new, I plan to focus on wholesaling until I have enough capital behind me to make some mistakes with other strategies that will build cash flow and equity for the long term. Because of this, my exit strategies are to wholesale to a rehabber or walk away.
DEAL 1
The first deal I originally posted here:
http://www.creonline.com/wwwboard/messages/49639.html
REO
ARV $1M (million)
4bd 3ba
Pool/Spa
High end So. CA Suburb
Repairs: $120K (thousand)
Days listed: 30+
The bank took property for $788K is asking $812K.
I plan to ask the agent to present an offer of $550K.
DEAL 2
MLS listing
ARV $750K
4bd 3ba 2500sq ft.
Almost completely upgraded.
Repairs: $15k
Days listed: 90+
Seller is asking $830K
I will offer $525K
DEAL 3
FSBO
ARV $450K
3bd 2ba
Repairs: $34K
Days listed: 40+
Seller wants to sell so she can buy another listing and is trying to avoid MLS to save commissions and doesn’t want to finish upgrading the property.
I plan to offer $282K.
DEAL 4
MLS Stink House (cat smell)
ARV $650K
4bd 2ba
Great landscaping and view.
Repairs: $50K
Days listed: 60+
Seller moved out interior is all original 1980’s construction. Plus major pet smell. Needs a lot of interior work. Great curb appeal.
I plan to offer $398K.
I plan to ask seller to pay all commissions and closing costs and I will assign the contract to an investor for a small fee ($5-10K) or walk away using an escape clause.
I don’t like the escape clause, but it seems like a good tool for my first few deals and I don’t see any other options with no cash and poor credit. When I have some capital built up to back up my deals I obviously won’t need it.
So, I’d really like your professional opinions on these before I move forward. Thanks in advance.
8^D
Re: Looking for more input - Posted by BTI
Posted by BTI on July 28, 2007 at 10:15:48:
David
Not going to comment on the deals, just want you to readjust your thinking regarding the high priced properties. Keep your basic formula in place as a working tool, don’t think in terms of the money just because it is a million dollar home.
You want a certain percent as profit whether it is a million dollar home, or a $500k home, or $100k home. I only look at the money as to whether it is an acceptable minimum profit in a deal.
But I always worked the deal based on my formula as the supreme guideline, of course a quick nickle is usually better then a slow dime, but don’t leave a ton of money on the table as a matter of habit.
BTI
Re: Looking for more input - Posted by Rich-CA
Posted by Rich-CA on July 27, 2007 at 21:35:02:
I would also look at comparable sales and pending numbers for the past 3 months (no older) to see what prices are moving in 60 days or less. You will need to include holding costs, which will go up if the price does.
Re: Looking for more input - Posted by Chad (MD)
Posted by Chad (MD) on July 27, 2007 at 06:37:16:
I agree with the others’ advice.
About the 70% formula: It’s not appropriate for million-dollar houses, since the profit would be too high (and the offer too low) in dollar amount. You can either adjust the percentage up (e.g., 85% of ARV), or use a dollar amount you want left over after all costs, including “soft costs” have been paid.
It helps to have several rehabbers you’re looking for houses for. Get their criteria and use that.
About not being a strong buyer: The secret is to fish for motivation. Make lots of low offers, and as soon as you receive some interest start lining up your buyers.
Re: Looking for more input - Posted by dealmaker
Posted by dealmaker on July 26, 2007 at 15:45:52:
Let’s just concentrate on the MLS listed houses first. You go into an agent and tell him that you want to make an offer on one of his listings. He will be very glad to see you and will offer you a cup of coffee. You don’t say what the listing price is on the one, but the other two are in the $800K range so selling these makes for a nice payday.
The agent does not want to waste the time of his seller so he wants to present a VERY COMPETITIVE (easy to say yes to) package to his seller. This will include an offer with good earnest money, backed up by a SOLID, SERIOUS buyer, with ample funds to complete the deal.
Unfortunately, you are not a solid and serious buyer. You also don’t have the funds and are probably not going to be able to borrow the funds to complete the deal. At this point the agent quickly loses interest in you. Then he may ask for his cup of coffee back.
Agents get paid when they SELL. In order to sell they have to have a BUYER. I don’t wish to sound harsh but you dont’ sound like a buyer.
dealmaker
Re: Looking for more input - Posted by Matthew
Posted by Matthew on July 26, 2007 at 15:37:55:
T think your offers arer a bit low, the 70% plan doesn’t apply to all situations.I think you should try the expired listings first they might be more eager for an offer.Deal 1-The banks agent won’t even approach the bank, too big of a hit for a 30 days listing on the market.good luck on the others.
Re: Looking for more input - Posted by David C. Cooper
Posted by David C. Cooper on July 26, 2007 at 16:09:47:
This was not the listing agent and I told her I was looking for investment properties. In fact, I explained wholesaling to her and that I would be assigning my purchase contract to one of “my” investors. She was very interested and we talked a lot about L/O’s and rehabs.
In fact, she encouraged me to make an offer on #4.
I see what you are saying about being a solid buyer and all I can say is if she really doesn’t believe I’m serious she won’t present my offers.
After all, if the deal is right the money will find me, right?
If not, how do I make this work?
Re: Looking for more input - Posted by David C. Cooper
Posted by David C. Cooper on July 26, 2007 at 16:16:03:
That’s the kind of info I was looking for. I know there is a curve as you approach the high end that shows “pretty houses” take a lot longer to move, but they have a lot more room in the numbers for profit.
I was hoping someone could suggest a better way to determine max purchase price, like a calculator or spread sheet function. I’m sure the curve can be described with an algebraic function.
If there really is enough room in this deal I’d like to make a slightly larger offer on the big property because I agree my figure looks unacceptably low, even if the property was listed for 120 days by now.