Confused about offers...

[SCflipper]

Can anyone please help me with understanding how to make an offer on a property for a good wholesale flip?

What on avarage will an investor pay for a house, what type of discount are they seeking? I seen on here that most look to buy at around 65% of FMV - repairs, is that correct?  if so, how is it possible to get a contract on a house BELOW that value?????

Ex..

Say I have the following house...

FMV = 100,000
Repairs = 5,000

So the investors formula would be like this

100,000 x 65% = 65,000 - 5,000 (repairs) = 60,000 purchase..correct?

if that is the case, who in their right mind would let me get a house under contract for less then 65% - repairs in order to make a profit?

Basically I wanna know what type of percentage discount I need to be looking for in order to make a profit flipping..

Also, the more expensive the house the less of a discount I need to get?

This is my excel formula I am using, please review

_____________________________________

Fair Market Value (FMV)   $400,000.00
x % Below FMV                                80%
Discount Price                   $320,000.00
      
Estimated Price of Repairs   $3,000.00
      
Assignment Fee 5%                   $16,000.00
      
Buying Offer Price                   $317,000.00
   
Selling Price                    $333,000.00
_____________________________________

as you see at 80% FMV there is still plenty of room for a flip on an house this expensive, with the above example the investor cold possibly make 64k profit, with me buying at 80%!

_____________________________________

Fair Market Value (FMV)   $400,000.00
Investors Offer                   $333,000.00
Repairs                                       $3,000.00
   
Total After Repairs                   $336,000.00
   
Investors Proft Margin     $64,000.00
______________________________________


But an house with a FMV of 80k, I would need to get a better deal then 80% FMV in order to have enough spread for a deal, it would have to be closer to %60 FMV to have the spread correct?

This probably makes little sense, hope It's not to confusing, Im new at this and have tons of questions! Thanks in advance for your responses...

[rvbeachbum]

Hi,

I think that what you should do is to think about the assignment fee in terms of $$$ instead of a %. Obviously, the more the property FMV, the more you will charge. But by thinking that you will always charge 5% assignement fee may be a little unrealistic.

Also, at least in my area, most people try to get the deals at 70% instead of 65% of FMV. On pretty properties that may be 75-80%.

Hope this helps.
RV

[kjb1891]

You can use which ever is better suited for your market. A $ or a % amount. Personally, I use 5% of ARV as my assignment fee, but then again I'm not working with $400k+ properties either. Most of mine are $50-100k. In my market 65% of ARV is fairly unrealistic, too. I have buyers that buy mostly in the 70-80% range.

As an example:
Say I find a property that has a $70k ARV with $10k needed in repairs. I would negotiate and offer:

ARV-30%-Repair Costs = Offer to Seller
$70,000-$21,000-$10,000=$39,000

I would then use the same formula with 5% added for my fee as follows:

ARV-25%-Repair Costs = Sale Price to Buyer
$70,000-$17,500-$10,000=$42,500

So, my profit would be:

Sales Price to Buyer - Offer to Seller = My Profit
$42,500-$39,000=$3,500

That's what works best for me in my market.

[SCflipper]

Thank you both  for your replies,

one question though for kjb1891

what does the 30% represent? so am I doing the formula wrong if I do it like

APR X 70% - Repairs,
I get the same numbers as you with this formula, I guess its just a few different ways to calculate it..

Anyway,

When you say your investors usually buy around 70%, is that their offer including repairs? if so, they would only offer you the 39k, if they bought it at 42,500, they would have paid more then 70%.

Why would you not deduct your 5% fee from your buying price? just curious, thanks

[kjb1891]

ARV x 70% - Repairs
is the same as
ARV - 30% - Repairs

100%-30%=70%

[kjb1891]

I do figure in my 5% assignment fee on my offer to the buyer.

If I offer to the seller: ARV-30%-Repairs
Then I ask my buyer: ARV-25%-Repairs

That's a 5% difference. My buyer would be buying for 75% of ARV before subtracting the repair costs.

It depends on how much I estimate the ARV of the property is. The cheaper the property the higher the % off of the ARV. That way my buyer is assured to make at least a certain minimum of $ per property.

If your buyer just flat out bought at 70% of ARV, figuring in 30% for profit, he would have significantly less profit on a cheaper property than a more expensive one.

30% of a $100k ARV is $30k.
30% of a $50k ARV is $15k.

That's quite a difference. That's why the cheaper the property, the higher the % of profit margin I figure in for my buyer. I always figure in 5% for myself though regardless of ARV.

I hope this makes it clearer now.

[SCflipper]

Yes it does! Thanks...

The only thing I do different then you is I add my 5% profit in on the price I offer the seller. instead of adding it on top of the price I sell it for.
Example:
ARV 100k X 70% - Repairs - My Fee = Offer
That way if I have an investor willing to pay 70% on houses with a 100k plus ARV, I would have purchased the house below that %, that way I can sell to the investor at exactly 70%, cause what if they aren't willing to go 75%??

I guess whatever works, I just need to call some investors in my area and see what they are willing to pay, or what kinda discount will they buy at.

I understand on less valued houses, say 50 ARV, that a 70% deal on that isn't a good spread to make a deal. You have helped me understand this all better now, thank you so much!

[kjb1891]

I do it the same exact way you just explained. Except it looks a little different.

You wrote:
ARV 100k X 70% - Repairs - My Fee = Offer

I would have put it like this:
ARV 100k - 35% - Repairs  = Offer

These two formulas above are exactly the same. I left the "My Fee" part out and just added(or subtracted depending on which formula you use) 5% to the profit margin % part of the formula.

These formulas below are all the same:
ARV 100k X 70% - Repairs - My Fee($5k) = Offer
ARV 100k X 65% - Repairs = Offer
ARV 100k - 35% - Repairs  = Offer
ARV 100k - 30% - Repairs - My Fee(5%)  = Offer

[annette41]

It seem like you know what your doing. If I may I will like to ask you some question. When signing a contract over to another investor AS is on a property. How do you determined whats your profit in the deal. Can you give me an example and maybe I can study it and learn the system on how much I suppose to get out of the deal. Thats the part I really don't understand. I do have a contract and I also have let the attorney look at it and they said its a good contract. Please give me some advice on the profitable situation.

Thanks

[SCflipper]

Well that all depends on how good of a deal you got on it and what an investor is willing to give you for it..

Say your investors in your market are willing to buy at 70% ARV..
if you find a house that has an ARV for 100k, then by my example the investor is willing to give 70k for it. So that tells you right there that you would have to get that house under contract for LESS then 70k, how much less depends on the sellers situation. I usually shoot for 2-5k, that's on average what you should look for, don't get greedy, make a quick 2k and move on.

Now the example above was with no repair cost, holding cost, etc. so take that in to account when making offers,

example:

Investor "A" buys at 70% ARV - Repairs - Holding cost, etc...

You have a house with an ARV of 100k, it needs 10k in repairs.
100k * 70% = 70k - 10k (repairs) = 60k, so an investor would give you around 60k for it. you have it under contract for 58k, you make 2k profit.

But you will have to line up your buyers and find out their own buying preferences, all investors are different, the more you have to sell to, the easier getting rid of a house will be.. Good Luck

[annette41]

Thanks for the info. When making a offer do I include settlement fees, attorney fees, and the amount of money I offered to the seller to put in their pocket would that be included with the purchasing price. I really thank you for the info. about being greedy. Thats one thing I don't want to do is be greedy. I will like to take my time and stay focus on the business. I will like to do 1 deal a month. Do you think that's to much.

Annette

[SCflipper]

I don't include settlement fee's cause I never close on a house, I just assign my contracts to investors, they are responsible for closing. They may calculate that in with their offer, you will need to discuss that with them.

1 deal a month can earn you an extra 2k-5k, if you work full time that is feasible, I work full time and shoot for 1-2 deals a month, Just make sure you do your homework when determing what the house can sell for after repair etc. I would suggest paying for an apprasial on your first few deals to make sure the house is worth what you calculated (by getting comps, etc.)  

[kjb1891]

Compile a list of buyers first. Look in the newspaper classifieds for houses for rent and houses for sale that say something along the lines of "Totally Remodeled".  Look up the addresses on your county's property records to see who the owner's are, and give them a call to see if they're currently buying and what they're looking for.

Also, I highly recommend buying a wholesaling course. Look at Steve Cook and Vena Jones-Cox.

[annette41]

Can you tell me how long a homeowner have to live in the resident for you to purchase the property. I have a list of foreclosures homes, but some of the homeowner only have live in the property for 5 or 6 years. If they only live in the property for only 3 or 4 years and I have a signed contract, can I still sign the contract to an investor?

[kjb1891]

It doesn't matter how long the seller has owned the property for. You can assign a contract regardless. The only problem is if your buyer's lender has seasoning issues where they require that the seller have owned the property for at least 12 months usually. I've never had this problem personally though.  I mostly only look at properties owned for at least 5 years to make sure the owner has a decent amount of equity.