using the ARV formula

[kevkev]

Greetings to all.What an amazing tool we have in the internet.I would appreciate some feed back on determining max. allowable offer. My reading so far appoximates (MAO = 65% * ARV - repairs). My question is, if I  plan on using  hard money loans for retailing, this formula does not allow much room for making offers to sellers. Am I understanding the formula correctly, and is making low offers on distressed properties the true essence of retailing?

[tedjr]

My HML loans 70% of the appraised retail value. They will loan 100% of the costs. I am not making lowball offers but finding low asking prices. A condo I am buying is a 2 br and was listed for $29,900. I offered $28,000 and got it. The property will appraise at $50,000 and the loan will be $35,000 which leaves me $7000 for the carpet and paint and appliances and points and closing costs. Almost to the penny of what it will cost. I can use seller financing too but not with this deal. It is working for me at least here in Austin where it is still a buyers market and there are a lot of Huds and REO's and foreclosures. I am trying to but 6 properties now but am running short of earnest money and appraisal funds. Too many deals and not enough money. I complain all the time of this problem or of having too much money and not enough deals too some time. Hope this helps.  Folks that buy to keep may use a higher % to buy more property. If I had cash for a down payment I still would not go above my 70% because of the expenses and risk. If they all sell fast for cash and no Realtor  would adjust the 70 to 80%. Most of us are not greedy but just want a good profit for the risk associated.

[StacyKellams]

kevkev,

Welcome to the board.

Always remember, you make your money when you buy not when you sell. Buying right is the key. If you buy right, ie. low enough, you can make mistakes (which you're going to make)  and still make money.

[Jeff Adam]

Kev:
Forget the hard-money lenders.  Most successful real-estate investors I know have mult-millionairs in their back pocket.  This can be accomplished very easily by putting a ad in your local newspaper:

"Real-estate investor with proven track record looking for investors who want to make 10-12% on their money secured by a First Trust Deed"

                                     or

"Tired of the Stock Market?  Make 10-12% on your money secured by a 1st Trust Deed"


When your phone blows up as it will, explain to your potential investors that you are a real-estate investor who buys and sells realestate.  Explain to them that you purchase properties at 70% of market value or less.  Meet with them, take them to lunch, dress business casual.  Tell them you will pay them 10% monthly payments or 12% Fee Simple, meaning you will pay them when their house sells.
Tell them this is with 100% Financing and no points.  

You can also use an investors IRA if you go thru an 3rd Party Administrator like Equity Trust.  

You will find the key in this business is being able to close quickly and having private money available.

For example, last week I purchased a house for $225k worth $300k with $7-8k rehab.  I made a phone call to my private investor.  He went to his bank the same day and wired the funds to my escrow company....  

Best Riches,
Jeff Adam