First Flip Help for a Newbie

[Jason Benson]

Just wanted to check into something. I am currently putting an offer in on a Fannie Mae home. The house is listed at $75k. It recently dropped $37k from $112k. I am not new to construction but I am new to the real estate side of things. I am working with a friend of mine and we both have both have funds coming in. We offered $65k for the house and our Realtor came back and said the listing agent wants our highest and best offer because of multiple offers. Our realtor suggested $80k as a max price. The resale value based on comps is around $175k. Just wanting some thoughts as to if this is a good decision? It's hard to know just getting started if we are being taken for a ride or if this is just how the process works? I have worked out the numbers and we are somewhere close to netting $42k if all goes conservatively well. Thoughts!! Thanks in advance!! Jason

[Suzanne Griffiths]

Jason, I would start with putting together a thought idea of the repair costs, then work backward from your ARV. Subtract out purchase price, repair costs, holding costs (property taxes, utilities, finance costs), buying costs and selling costs. Then take that number and divide it by your total costs. This will give you your Return On Investment. For our business we won't touch it for less than 15%. If it's less than 15% adjust your purchase price until you get there. This will give you your Maximum Allowable Offer.

Another quick method is take ARV*.70-Repair Costs=MAO.

Either way you need to know your repair budget.