Offer Formula

Hi Everyone,

I am new here and I am really exited about it.
I am trying to figure this out. What about if you are planning to live on this property? Will this formula apply?

Here is my scenario:

Asking price 435K
DOM: Since 12/06
Vacant
No mortgages pending owner owns it free & clear
Comps 269k averg actual sales
comps from websites provided above Average 383k
Assessed Value 470k
Owner financing available

Will this formula apply to this as well I would like to live in this house? It is obvious listed price to high. What would be a fair offer based on these factors and your formula, if can apply?

Thanks for you help!

You can apply this formula to any single family property you may purchase. If you are purchasing a property to live in (owner occupied) it would well for you to have equity in the property. The offer formula would work for you. You can keep all the expenses that I use or cut some of them out such as the Realtors fees as you don't intend on selling the property for some time. However, keeping the Realtors fees in the formula could be beneficial if you were to sell the property later.

You can apply this formula to any single family property you may purchase. If you are purchasing a property to live in (owner occupied) it would be well for you to have equity in the property. The offer formula would work for you. You can keep all the expenses that I use or cut some of them out such as the Realtors fees as you don't intend on selling the property for some time. However, keeping the Realtors fees in the formula could be beneficial if you were to sell the property later.

What closing costs does the Lender (or corporation-owned) pay for customarily? Which closing costs would they refuse to pay?

I'm green to investing, not for long though.

I've been racking my brain on how people come up with the closing and holding cost for Offers.

Thanks for giving real examples with real numbers. I appreciate it.

This is a good formula to follow, but do not limit yourself and remember to think outside of the box...With this formula, you can come up with the max that you would give for the property, but for the first offer, do not give them this price, because if you do, you have just tied your hands to the max. amount that you would give and you have nowhere to go from there. Remember, your in the bus. to make money, so make your offer lower and give them time to chew on it, you mite be surprised that it can be bought for a lot lower.
If they do not except it, then you ask them to make you a counter-offer and so-on, until you get to your max. offer. Good luck and thanks
erh

Here is how I come up with holding costs.

Take the value of the property.
Multiply this value by .012.
I use this for my monthly holding cost.

Once I know my monthly holding cost I multiply this by the number of months the property will be off the market.

I find the number of months off the market from comparables given by Realtors. These comparables will often show the DOM (days on market) for each property. Taking the average then throwing in my own experiences for the area I decide how long I will hold the property.

I understand that my formula is high. Some may questions my numbers; that is fine. I put the numbers the way I do so that I can cover "what if?" Often I may get more expensive mortgages, or run into more costs or whatever and I want to cover myself.

When I am looking for Closing Costs I look at two numbers:

When I am getting conventional financing I will contact a closing agent / title company and ask them a general cost. Many people will guess 3% of the FMV but I find I get better numbers when I ask. I have seen closing costs go from 3% to 4% of the FMV. I do not want to lose 1% profit because I did not ask.

When I work with hard money lenders / Private Financing or other similar financing I generally estimate $1,500. Most closing in my area with private type financing will close near this amount. I can add points charged from hard money lenders to this if I need but that would be up to me.

I'm in love with this formula, I was talking to a VERY seasoned investor about a 3b/2ba short sale property that was listed for 124900 but FMV is 130000 about what my offer should be. He said " you can probably get that for 100000. I just ran nstreets numbers and VOILA! The most I should offer is 101740!! Very impressive. I bow at your feet.

That formula is really helpful thanks for the posts.

Dedicated & Motivated

I found what I hope will be my first deal, and using this formula will help me figure out if I am right or not. I still need to have the rehab costs estimated before I make an offer. But using your formula will be my next step.

Thanks again,

Janet

This formula is awesome and fills in most of the gaps to making good educated offers. The question I have is about repair costs. I understand we can always get estimates from local contractors but I don't want to keep calling them to get estimates when I am not sure if the deals goes through. Are there any magic formulas to calculating repair costs? Or what other option are there to do these estimates?

nstreet,
When it comes down to closing cost between conventional and Hard/private funding,Convent. 3% to 4% and non conventional flat fee $. I get the three page close and the telephone book close!How is it hard/private cash gets better closing costs,I had to ask coach!!!

Randall

I am not sure I fully understand you questions. I will take a stab at it anyway and if I get it wrong you can clarify the question.

Hard money / private money closings are cheaper because you do not have the origination fees if the fees are tacked on to the end of the loan. You do not include many other fees as well that are usually designed to make the mortgage broker / bank more money. You will still pay prorated taxes, insurance and other necessary costs as well as the title and closing. Most costs that I pay for closing with hard money or private money are about 1% or less.

Well this formula work on assignment contract?

Thanks nstreet for the info. Anything that we can put in our toolbox that will help us along is always good. Keep it coming. Those of us new to investing can use all the help that we can get.

Geri

I too would like to know if this formula works for assignments.

I'm assuming if your assigning a FSBO you can knock out the realtor fee. And probably keep the "holding costs" in there for the assignee. Am I right?

Thank you so much DG family. I'm a newbie and am so excited about starting this venture. Have read DG's last book and bought the Edge videos and spent hours and hours and more hours reading these forums. So much information. I find the more I'm learning the less my fear factor.

I like the formula & the lowest I go on my profit is 15%. Profit is one of the reasons why we do this so you have to make sure your money. Thanks for the pointers bud

Everyone Can Make A Difference!
John A.

I have always wanted to buy Mobile Home Parks, and now that I have read all Deans Info and gotten The Edge, I still want Mobile Home Parks, would you use the same offer formula to make an offer on a whole park? Also what would be the best way to finance this type of purchase?

Can anyone please explain the Matt Larson's (25:1 Formula). I would really appreciate it.

I'm new to this also The analysis system on this site is it close on fmv price. Do we pull comps using zillow and the other sites or contact a broker.

HI DG Coach,

I like your formula.
Thank you,
Marina

This contract will work great for assignments of contract if your buyer is following something similar.

You will find that buyers have their own way to determine their offer price. This formula is common enough that a portion of your buyers will use something similar to this or even this same formula.

The offer may not need to be used however because if you have a buyer that says "Hey I want properties 25% below market" you really don't have to do a lot to figure out what you are going to give.

Either way I suggest working with what your buyers want.

If you deal with a FSBO you can knock off some of the costs that you will have. I do not suggest you do this though unless your market demands that you make higher offers.

If you make the offer as it is presented and you are able to cut closing costs and your realtor fee this now becomes more profit for you.

I this scenario you are then able to take your profit potential from 10% - 15 or even 20%. This can make a very large difference in the growth of your business.

This is also why we suggest that you create a buyers list. If you have a buyers list you are able to cut your holding costs down and create more profit.

Matt's formula is found all over this sight. It basically is for every 25 offers he makes he gets 1 acceptance. Keep in mind that he is making offer on properties that have a probability of getting accepted.

The idea is to make a lot of offers quickly and often to get a property in transaction for you.

Some may be concerned at the time it would take to make 25 offers. Matt makes the offers as a percentage of the offer price and the offers change with his market and from season to season.

This offer formula would not be the same for a mobile home park. Mobile home parks are commercial properties. As such you will be working off the cash flow of the property. You will also be using measures such as CAP rate, GRM, Debt Coverage Ratio, Profit and loss statements and so on.

Mobile homes and mobile home parks are an entire different animal from SFR's. If you are looking for more information on this subject you can search commercial and mobile homes on this site and you should pull up a good amount of information for you.

nstreet -

I am a visual learner so could you give a real life example of the offer formula when you don't have plans to hold the property, but plan to immediately assign the contract to an end buyer? So, I need to see how to determine the offer without holding cost and those costs that usually would not be involved with an assignment contract to come up with a valid maximum offer to the seller.

Then, I need to see a formula that I can use to determine a valid price to get the end assignment buyer to purchase the contract for so that both the end buyer and myself make a reasonable profit. For example sake, let's say the assignment buyer is looking for a 30K to 40K profit and the seller asking $179,000 and is motivated and the property been on the market for a long time. No major repairs needed.

Also, it is my intention to not have to attend closings so I would hopefully be getting paid by the end buyer prior to closing.

I just can't seem to get the hang of this for some reason.

Thanks,

Verna (newage8767)

I like your formula for single family properties, do you have a formula for multi family housing, like apartments and mobile home parks, I actually am looking for mobile home park info, thanks

Nstreet,

I just wanted to say thank you for this formula. I was looking through different forums and I found this one. I have to say it is great. I will definately be using all the information on here from you and the others. So thank you again and hopefully some other new DG'ers will stumble upon it as well. It will be very beneficial to us.

Richard
Bothell, WA