Rehabbers formula

[realg07]

Im curious what type of formula the experienced investors use to come up with an offer amount on a rehab?
Ive heard 70%, but from there do you deduct repairs and holding costs, loan costs?  How much of a discount do you try to get above and beyond repairs and costs(holding, selling).  
Also do many use HML's?  What are some thoughts on using them and their rates?  I hate trying to get loans through conv. lenders, that is what I have done in the past but I dont look forward to trying to qualify everytime I want to buy a house.
Thanks, J

[bw1411ii]

100,000   ARV
  75,000   Max Offer Price (75% ARV)
  10,000   Estimated Cost of Repairs
-----------
  65,000   Actual Offer (75% ARV minus COR)

  10,000   Cost of Repairs
    3,000   HML Points
    6,000   6 Months Holding Cost (interest- HML, insurance, utilities)
    6,000   Marketing Expense (6% of 100,000)
-----------

 90,000   Total Expense
 10,000   Net (ARV minus Expense)

That's how I do mine.  I figure everything on 'worst case' basis.  I make it a 'special' rehab (something to set it off from the comps) and price it above the comps at the end.  

I use HML (or private investors) for all my flips.  I go straight to conventional lending for fix and hold.  Hope this helps.

Good Luck

[kimesha]

bw1411,
  i've been trying to perfect this formula also. i was wondering where is your closing cost to buy? does that come in with that missing 15%? any clarification willbe appreciated. 8)

[realg07]

Yes, I Think the cost of the loans and closing are out of that 15% which still leaves a good profit.J

[bw1411ii]

Yea, the closing costs would be included in the 'points', since I usually roll them into the Hard Money Loan (which locally is actually, currently 3 to 4 points).  Depending on the seller (if an REO or Short Sale), I try to negotiate them into the deal.

The profit isn't bad, but you can see, if you were to offer 80%, it gets you to the point where, if something were to go wrong (more rehab cost, longer holding, etc), you could get close to going negative.   So the key...don't fall in love with any deal, if the numbers are marginal.  

Good Luck!

[realg07]

Bob, thanks for you imput, Jake

[Bud Branstetter]

On this house I would look for 20K profit after everything considered.  To many things can go wrong if you plan on only 10% of sales price as profit.  If you have a crew and are sure of repairs you still may not get top dollar without waiting longer than 6 months if you buy at the wrong time of the year.