Still having problems calculating offers--help

Greetings!

How long has the property been on the market? I ask because that will determine how motivated the seller is. If the seller is very motivated, I would go for a low offer. Keep the back door stradegy.

Hi,

The property has been available 101 days! Just fell out of escrow with another buyer, so seems like a good one to pursue.

This property is bank owned and agent is not being very cooperative. He called me yesterday asking if I wanted to submit an offer. I said yes, but he said "they won't even look at it." I told him to submit it anyway.

That's where we left it.

Buy my question is a general one, because I am really struggling with calculating my offers.

Thanks for your help,

goldrush

Ok, if the FMV is 170K, ARV is 210K, you're offering 134K and you want to make 5K profit...if your offer is accepted, you're going to now pass it off to a buyer/investor for
139K (134k + 5k = 139k). Remember now, you are the wholesaler. Now, the repairs are 5k. What you do next is add the repair cost to the 139k which gives you 144K. Then you subtract the 144k from the FMV, which is 170k, which gives you 26k. That works out to be about 13 - 15% below FMV...not much. But if you subtract the 144K from the ARV, which is 210K, that leaves you with 66k in equity, which works out to be about 26 - 28% below ARV. Probably someone else could explain it a little better than I did but I hope that helps.

D'Angelo

Ok D'Angelo, I follow your thinking. So my question is what is a good ballpark percentage below FMV or even ARV to use as a guide? Any suggestions?

Thank you so much for you input. In time, I will get this right...especially with help from people like you.

goldrush

Most investors go for 50 - 60% below ARV or FMV but every property will sell as long as it has some equity. You'll just need to find the right buyer.

This is what I do when I wholesale.
1.I go by ARV
2.I offer 65% of ARV minus repairs.
Example:
True ARV is $200,000
65%= $130,000
Rehab is $35,000
My offer is $95,000
I would flip to my buyer for $105,000
His costs are $140,000, my profit is $10,000
He is buying at 70% of ARV, $60,000 Gross profit
That is plenty to cover his hold time, commissions, fees, etc.
When you can supply deals like this, investor/buyers will line up at your door!

Hope this helps,
Michael Mangham
MD Home Acquisitions LLC

Thank you so much. One question I have is would you use the same approach if submitting an offer on an REO? The example here happens to be on a bank owned property that has been on the market 101 days and has already had one offer fall out of escrow. Thanks again!

Yes, the numbers to make it work are the same, however on a REO you can't assign the contract, you will have to double close and use transactional funding (one strategy) They charge about 2% to provide the funds you need. So using our example of a $95,000 purchase price your money cost is $1900 making your profit $8100 instead of $10,000. There will also be some additional closing costs to pay or negotiate on the b to c closing.
You must have a buyer in place to do this or the lender will not provide the funds for your a to b closing.
Ask your agent what is needed to submit an offer on the REO in question.
Good Luck!
Michael Mangham
MD Home Acquisitions LLC

Actually the agent said the lender would not accept anything under $170,000. I do have transactional funding available, if needed. I just thought that if one escrow already fell out and this now makes DOM over 100 days, that maybe they might take a significantly lower offer for quick closing and all cash. Admittedly, the number I originally came up with (134k) was not really low enough for a quick flip.

So if I use the same method for calculating my offer, then I feel better about that part and I will use the same approach with other future deals.

Everyone's explanations and ideas are helping. Thanks.

Excellent point! I will see what I can find out about the previous offer.

I think another important piece to this is if the agent will comply with submitting an offer they think is much lower than what they think the bank will take. I can't help but figure they don't want to submit my offer because it will cut their commission. I think the fix to this is submit an offer through an investor friendly agent. What do you think?

goldrush

After reading this, I am concerned about a few things. First is the way that it was left off with you and the realtor. From the realtors reply, I will tell you that the offer is not going to get presented.

I have been down this road before. You need to call that realtors office and talk to the broker of record and state to them that the agent is going to make the offer and if they do not, you will file a complaint with the state board of realtors. Trust me, a complaint to the state board will get attention.

You also need to ask the realtor the following and do this exactly this way:
did you present my offer, wait for a reply, once he/she says no, then you ask this... do you own the property? do have a ownership interest? wait for answer, if it is no, then ask, the how do you know they won't look at it? do they have a better offer for their 101 days on the market property?

My other concern is this. Do you even have a end buyer lined up? if not, you really need to stop looking for properties right now and begin establishing relationships with buyers.

You cannot assume that a buyer is going to be looking for a certain discount level.

You need to have relationships with buyers where you already know what they will pay for a property in a certain market, price point, etc.

Some buyers will not touch a property where they need to do a rehab, some will, some will buy something that is so bad that it needs to be gutted and rehabbed, some will buy in certain areas, some won't.

You need to know who your buyer will be or you will spin your wheels and get nowhere fast.

There is also going to come a point where the seller will ask for a POF letter that can be verified, especially if you are asking them to take less than they want to. If they are going to take it off the market, they want to know that you have the funds.

Now lets say for educational purposes that you get the deal, then what? what happens if your buyer backs out after you buy? are you prepared to shoulder the holding costs? other costs of marketing, etc?

I am not trying to discourage you, that's not my gig. I am trying to pass on somethings that come from experience.

Thank you so much for your comments. I appreciate you taking time to detail such specific concerns and will take them to heart.

1. The agent is now off to a 1-wk vacation. He never sent me the specific things he needed from me including POF statement, check, etc., even though he said he would. It's Friday night now, and he didn't send things before leaving. I guess I can call his broker if I want to pursue this now.

2. I do have a buyers list of investors (60+) who buy with all cash and can move quickly. I need to do a better job of finding out what their buying criteria are. So that's a priority if I am going to try to do deals like this.

3. I don't have another back door if my first investor were to back out, unless I quickly got a replacement.

Thanks again.

What is the asking price, put an offer in at 50-60% of the asking price, see if they bite.

What happens if you blindly offer 50% to 60% and the repairs are high?
Say a $100,000 property needs $45,000 re hab. You offer $50,000. Oops!!
You just paid $95,000. Or the property needs no work? Your offer is not going to be accepted 99.99% of the time. You can't build a true business unless you know exactly what you are dealing with. This is just my opinion.

Goldrush. Believe me, if you can get deals at 70% of ARV after repairs you will not have to look for certain types of wholesale (that's what we are talking about right?)buyers. They will all love those numbers. 99% of them anyway. Talk to some people that actually do wholesaling for a living. Once again, this applies to wholesale flipping, not buy and holds or end buyers.

Go out and make offers!!
Michael Mangham
MD Home Acquisitions LLC