Rehab formula question. - Posted by TSTITT

Posted by HR on March 17, 2000 at 06:12:15:


I enjoyed seeing your numbers. I have come to the same conclusion and modified legrand’s formula somewhat. My new formula is:

MAO = ARV X .85 - repairs - profit for rehabs.
MAO = ARV X .85 -repairs - contractor profit - my profit for flips.

As a quick down and dirty, I notice that what these numbers often end up at is an offer at 50% of the future ARV. Hence, if the house will be worth 100k , I got to get it for around 50k.



Rehab formula question. - Posted by TSTITT

Posted by TSTITT on March 16, 2000 at 17:01:14:

I am looking for a house to rehab and sell. I would like to use an effective formula to ensure I am on track price vs cost vs profit and etc.

What formulas are the best to use?

Thank You


Re: Rehab formula question. - Posted by Laure

Posted by Laure on March 16, 2000 at 20:35:49:

Rehab can be a lot of fun, sress, sleepless nights and rewarding! I personally, don’t go into a rehab unless I figure I can net 20K… sometimes it comes out less, and sometimes a bit more. I used to believe I could just carpet and paint and that was a rehab… but everybody and their mother can carpet and paint, and the real big profits are in more extensive rehabs…ie. kitchens and baths, roofs and siding. Big payoff there. I concentrate on first time homebuyer market. They really like it when the house is all cute and new. Easy sell!

Good Luck
Laure :slight_smile:

Re: Rehab formula question. - Posted by JoeB(Atlanta)

Posted by JoeB(Atlanta) on March 16, 2000 at 17:14:38:

Hi Tim, the formulas you can use to analyze a rehab house are varied–different strokes for different folks.

Here’s my 2 cents (based somewhat on LeGrand’s stuff): AfterRepairValue(ARV) minus BuyingSellingHolding(BSH) minus RehabEstimate minus Profit equals MaximumAllowableOffer (MAO).

ARV is established by getting comps/sales prices.

BSH averages 15% of the ARV for us; these are all buying and selling closing costs, plus cost of money, debt service, marketing, monthly utilities, insurance, etc.

Guestimating the Rehab itself is a whole course in itself (I think Kaiser and LeGrand have good courses on this).

The Profit we like to ‘shoot for’ is about $1 to $1.25 of profit for each $1 of Rehab we’re projecting (ie we’d like $20k in rehab to generate $20-$25k in Profit), don’t forget to add in additional profit for yourself if you’re wholesaling (ie flipping as-is) the house.

MAO is the most I’ll offer, so I start a little lower and work up to it.

There are lots of other formulas–consider them all and use whatever fits your risk/reward/experience.

Best of success,
Joe Brillante