Offer Formula

This is what I have been looking for. However I too would like to see the formula for Apt.Bld's, as I am working on some Birddoging and have a SFR and small Apt Bld package. I need to be able to separate the two and make my PROFIT!!
Thanks Bruce....

Apartment building as are defined as 5 units and larger.
Apartment buildings with 4 units or less is considered residential property. The reason is they use residential loans.

If you are looking at making an offer on "apartments" with 4 units or less you would run the same formula.
You could work one for the income:

Total Market Rents
- Taxes
- Insurance
- Vacancies
- Utilities you will pay
** Do not subtract the mortgage.
- YOUR PROFIT PER MONTH
= The most you can pay for a mortgage.

If you are planning to work on apartments of 5 units or more you will be looking a lot at ratios and identifiers for the properties.
Here is a short list:
- Cap Rate
- GRM
- Debt coverage ratio

That is great and so timely for me. I saw 2 properties today that might work for my first deal. One is a single family house that needs some work. It is next to a very nice house, the owner is in VA, and there is a junk car in the driveway! : ) It is 3 BR, 2 baths, and 2 story. It says $49,900 on the sign, but I do believe it can be had for much less! This formula will be really helpful. I LOVED being at the EDGE. I learned SO much!! I am really ready to launch my investing career. Anyone want to partner on some deals in Atlanta? If so, please contact me. I want to retire from my j.o.b. by the end of August, so I can do this full time. Just 2-3 deals would replace my yearly income. Then I can work full time on retiring my husband from HIS j.o.b.!! He is a computer whiz working on his PhD in Network Security and a full time IT professor. He had set me up a website before I got home from Scottsdale! I am blessed to have his support, and I know not everyone has support on the home front.

Thanks Nate and everyone for such good advice. DG.com rocks!

I too would like to know how to calculate quick repair costs on properties without having to contact a contractor everytime I look at a property. Eventually I'll find one or two guys I can call who will work with me on deals but initially how do you do this?? Even from looking at it over the internet or from a RE Agent who sends you leads?

Any help would be great!!!

When creating an idea of repairs you can contact your local Home Depot or Lowes and they can walk you through costs, time, and labor.

There are also programs in the market that you can use as well. There is a program that is available call "National Construction Estimator". This will allow you to itemize your expenses even down to the nail so that you can create a very accurate estimate that you can use on your properties.

I would suggest, though, that you get a contractor that will give you free bids. This way you do not give yourself more work to do and build report with someone that you can use later on.

Good info to go by!!

I have a question, how are you getting the FMV?
Are you using totalviewrealesate.com?
And is that safe to use when making an offer on a house?
Also why are you basing your offer on the FMV and not the price per square foot?

Is "Value of Property" the Fair Market Value(FMV) After Repairs? (ARV) I understood all the rest..just wanted to clarify the Value you were using.
Sounds like a great formula to me..I will be adjusting to accommodate a Wholesale/Assignment deal. Thanks a bunch for your input. Semper Fi D-LO

Keep in mind that the FMV listed here is just for example.

There are multiple ways to find the FMV or also called the ARV.
You can use totalview, Realtors, appraisals and so on. Find the one that easiest and most accurate for you.

The FMV as whole is easier to do subtractions than subtracting by square footage. However, you can do both and both will work.

To answer your question the value of the property is either the FMV or ARV whichever you would like to use as a reference. I used value of the property so that everyone understood it is the value. We should note that it would be the value after repairs or in its most marketable value; however you find the information for yourself.

This should help you put the offers together. Enjoy.

I was just looking through Dean's calculators and forms and couldn't find an "offer formula". Right on time Coach.

Thank you so much.

Peace and Blessings,
Sheila

Nstreet
thank you for posting this formula. It let me use a calculation to see if my cash offer was close and I see that I was a little low. I am looking to purchase a 3br/2b to help a family member. Asking price is $149900. Tax appraisal $148500. comps approx $160000. rehab $35000. I was looking to make cash offer $80000. Using this formula it calculates at 88k so I might increase my offer to 85k.

Brad
circle3investments

resurfacing this post as well! Nathan is brilliant! I have seen ALOT of post recently where student's potential lead/'deal' numbers are borderline "if'y" to say the least.

Alot of 'gold nuggets' in here and throughout the top users threads! I mean.....just sayin....

So lets go treasure hunting!

Awesome information! Thanks!

This one works great for wholesale deals .

Randy S.
Elkton MD

I think Nathan stated this is the formula he uses when he fix/flips it himself or buy and holds the property. not when he wholesales the property. Please correct me if I am wrong.
Anyway in 2011, my buyers that purchase wholesale deals from me want to see at least 15% net profit. PLUS I must then subtract my profit also.
When you do the work or hold on to the property yourself you can offer more, but when assigning, double close etc you need to offer less!
What works for us here in Denver in 2011 is (when we wholesale) we buy at 65% of a true quick sell ARV minus repairs then wholesale it to one of our buyers for 70% of ARV minus repairs.
Remember, NO formula is set in stone. If you have to pay a little more, but have a buyer that is willing to make a little less on a deal that of course adjust your offer!

Michael Mangham
MD Home Acquisitions LLC

I can see that you could offer higher if you did calculate an $88,000 max offer price but what I would do is go with your first instinct and offer aggressively. $80,000 sounds like a good offer. If you have used the formula use it as a guide. What is nice about going in an offer at $80,000 is that you have $8,000 in room to get to your max offer price.

This is a very useful tool to add to our box, and it can be used in a lot of ways. I also appreciate all of the smart questions, and your excellent answers. I had questions answered even before I knew I had them. Lol This will help many of us from turning "a silk purse into a hog's ear"! Thanks a million.

After I wrote that comment -- I found a better formula for wholesaling .

Essentially , it comes down to the 65 % rule . The formula is on biggerpockets.com and was mentioned on this site by others .

Thanks Michael for the clarification .

Randy S.

nstreet,

thank you for your reply. I did offerf 85k for this property as a cash deal. The owner/agent did not like my offer and countered with 139900 cash within 7 days. This owner/agent called my agent three times in 16 hours and I thought she would deal. I walked away from this property. Thanks

Brad
Circle3Investments,LLC

review

Hey This is tight....

now

Thanks for this formula and the comments following. I learned alot and it was just what I needed.

Wendy Olson

thats a pretty good one but i use an entirely different one altogether!

mine is a 20k garuntee formula! (sorta)

ill post it up later tomarow!

I am watching the EDGE and I don't understand how Ali got CAP (cap rate). I found the formula in the definition section but can anyone give an actual sample?
Thanks!

Just wanted to share with you a thought that I had recently. I was also feeling bad about constantly asking contractors to give me free estimates when not only was I not sure if the deal was going to go through, but as I would be wholesaling the property, it was almost guaranteed that their work would not be used because cash buyers tend to have their own contractors they use. This being the case, why don't you ask your buyers for the number of their contractor. For instance, if you offer a property to cash buyer James and he seems interested, tell him you would like to use his contractor to get an estimate of the repair costs for him.

Thanks for sharing most important aspect of a REI "Deal". Mess this up and your Profit could disappear. Semper Fi!!D-LO

Be cautious of using a blanket 65% off of the value of the property. This will generally work and can work well.

Here are the difficulties that may come from using a blanket 65%:
- Your repairs may be far higher than you expected and it can bite you in the *whatever*.
- Your market may not handle a 65% offer very well. Each market deals differently to offers. A good measure to how your market handles offers is what do your buyers want? Your buyers will often give you percentages that they are currently getting in your market. For example: I have buyers in Utah that want 20-25% below market with an occasional 30%. This means in certain areas of the Utah the market I should expect to need to offer higher than the 65% range.
- Your market may handle lower offers. There are markets such as areas in Mississippi that can handle 50-60% below market offers. This means that if a 65% rule is used you would offer way too much.