Possible Flip Deal

The value you need to determine is the Fair Market Value (FMV) of the property. In other words, what is it worth as compared to similar properties (comparables or comps). You need to have the realtor run comps for you. Be sure the properties are nearby, of similar style, age, size and condition. Another value worth knowing is After Repair Value (ARV). In other words, what will the property sell for after you make the needed repairs and improvements? Your realtor can also help you determine this. The assessed value is the amount the home is taxed on - not a realiable number for market value. The asking price is often meaningless in determining value. Another question is, how much do they owe on the property; with the asking price being so much higher than the assessed price, makes me think they may owe more than the house is worth in today's market. This then would create a short sale - where the bank has to approve taking less than the mortgage - a lengthy, complicated process, but not impossible.
You, of course, have to take the cost of repairs, holding, financing, and sales costs to determine what to offer and what the potential profit could be.
Hope this helps some and best to you!
Gena

The ONLY value you need to be concerned with is what the house will actually SELL for fixed up the way you plan on fixing it up! This is called the ARV or after repaired value.
You determine this buy looking at what COMPARABLE properties sold for in the last 90 days. How long they were on the market before they sold and how much did they have to reduce their price from their original asking price. Then you need to look at COMPARABLE properties that are currently listed. What are they listed at, how long have they been on the market. How many in the area?
Finally, look at properties that are under contract. What did they sell for? How long on market? Any price reductions?
After you do this research you will know what the MARKET says your house will SELL for. Not what it appraises for! The MARKET determines value, nothing else.

Here is an example.
Property appraises for $200,000
Comps Have been selling at $189,000 average after 120 days on market.
Currently listed comps are at $187,500 Average and have been listed 90 days already.
Under contracts are averaging $185,000 at 100 DOM.

Is this property worth $200,000?
Would you base your ARV on $200,000?
You want your property to sell quickly right? Don't you want to list your rehabbed property at around $179,900?

The MARKET determines what the property will sell for, that's all we care about when we wholesale or do the fix/flip ourselves.

Michael Mangham
MD Home Acquisitions LLC

Hi Gena,

Thank you very much for the advice. That's a good point you made about the short sale, it makes sense that they are asking for a higher price because they probably are underwater on the mortgage, I'll have to dig further about that with my agent. I think that the comps in the area average near $100K, but I will confirm that with my agent as well. I appreciate you taking the time to offer your help and advice, thank you very much

Hey Brad & Vickie,

Love to hear of couples on board and working together. So awesome! Congratulations on making the decision to invest in RE.

Gena gave some great pointers and direction!

Based on the info you provided, and since you seem to be looking to buy/fix & sell this property. Have your agent pull you sold comps. based on same/similar property criteria : bd/bth, sq footage, age, etc. You are going to want to know what properties are selling for (which goes into determining the FMV to use as a starting point to determine you offer). I would suggest them sending actives, pendings and solds. To analyze the market. EX: how much competition/weight is out there, DOM, are properties selling on a retail market, and a true current FMV based on solds. But you've got to identify your starting point for offer calculations and determining if this is a something you can work with and where it needs to be in order for it to work.

You are going to have to identify the cost of the repairs. You said "alot of work". $10-$20-$30K?? What would it take to get this property up to a comparatable level but with a 'bling' to the competition. (fully area appropriately rehabbed, at a better price to move it quickly). After your agent sends you info., if it's enough to peek your interest, and interested in possibly moving forward, have a couple of contractors meet you at the property. Do a walkthru with them. Get them to give you an estimate. Most will do this initally without charge. But if you're having them sight several a week they will probably charge you a fee. lol But honestly once you've gone through the entire property with several contractors, compare their materials cost with your own research (can be done at Lowe's, HomeDepot, etc.) it will only take one or two before you can get a pretty close estimates for yourself on future properties and do your own preliminary estimates.

How long of a holding preparations do you have based on how you are purchasing it? What is your Plan B? If you aren't able to move it as quickly, etc. are you prepared to hold this property? All which you need to have the foresight and also take into account and budget accordingly.

I would suggest having 2 to 3 exits inplace before you enter.

God Bless,
Jen

Hi Michael,

Thanks for the help and input. We're brand new trying to learn this stuff, so answers/advice from people such as yourself help us out greatly and we really appreciate you taking the time to help us out. We'll start checking the area more in detail and hopefully come up with a good FMV and then try and determine a what the ARV will be. I have the feeling that this might not be a good first property to work with, but we'll continue our research. Thanks again

Sorry Michael... my post is pretty much redundant to yours. Timing issue....when I started Gena's was the last post on the thread. LOL

Be Blessed,
Jen

Thanks Jen for the additional info. Good stuff, we appreciate the detailed steps. I can't wait until the day that I'm the person like you giving advice to others, thanks again!

Don't worry if this is not the property! Use it as a learning experience. You can run all the numbers and make your offer. Most of what we do involves finding out what is NOT a deal anyway.
Congratulations on taking action, you will learn so much by getting out and looking at properties.

Jen, no need to apologize, your post had good info!

Michael Mangham
MD Home Acquisitions LLC

Hi everyone,

Im running thru my first deal here. And Im a litlle scared
here you can say. Ive got contracters giving me accurate estimates on the house now. I kinda stummbled over this one which is all good if I can Run the numbers correctly..I'll run it by and if theres anyone whos got some advice to give I'm all ears...It is a home in need of repairs. The asking price that we have agreed on (no contract yet, will determine after all the numbers are ran)is $55,000 .$5000,00 dn and bal due in six months.The ARV is roughly @ $125,000 with the repairs @ about $15,000. I was hoping on reassigning this home @ $65,000. Does this look accurate? Although I have been following deans blogs for a while im still a little unsure if Im doing this correctly.
Thx Michelle