Real Estate Investor · Center Moriches, NY · Member since 2011 · 163 posts · 4 votes
I'm a little confused on this and not sure how it works out.. and hopefully someone can help me out...
First, when you want to buy a house and someone owes (random number) 200,000 what is the most you can offer on such a house to buy and repair? (in flipping terms). I'm assuming you would have to flip the house for much more then what is owed, correct?
also, if their was a house and the owner owed the bank 100,000; then the bank takes it away from the owner due to the fact the owner was not making payments, is this 100,000 taken away then the bank has it in foreclosure and puts it up for lets say 150k? I may be confusing my self with the question but hopefully someone can enlighten me.
I'll add my two cents on the first part of the question: How much someone owes on the house is somewhat irrelevant on what you offer for a fix and flip. It depends on what the house is worth. Then you work backwards for your offer price depending on the repairs needed.
If your offer turns out to be less than what the homeowner owes, that's the homeowners problem. Either they have to bring money to the table to sell the home, or enter into a short sale agreement with the lender.
There is no limit to how much you can offer, however you're profit will suffer the more you offer, obviously.
Most investors are looking to have a property at 70% ARV when they have a flip and sell exit strategy. For a buy and hold strategy, you're offer will be based on what you can rent a house for (unless you want to play the appreciation game)
Homeowners debt, the value of the house, and how much you can buy the house for are three separate figures, obviously the amount you offer them is contingent on what you think you can sell it for; and what they will accept as an offer is contingent on what they owe on the house.
In some states when a lender forecloses, and there is a surplus after selling the house, the former owner can apply for these overages, never been there, don't know he process.
I'm not even sure if I answered what you were asking, your post was a little confusing.
Andrew
Edit: Trying to clarify my thoughts, still confused rereading OP
I'll add my two cents on the first part of the question: How much someone owes on the house is somewhat irrelevant on what you offer for a fix and flip. It depends on what the house is worth. Then you work backwards for your offer price depending on the repairs needed.
If your offer turns out to be less than what the homeowner owes, that's the homeowners problem. Either they have to bring money to the table to sell the home, or enter into a short sale agreement with the lender.
Hi Shannon - I will try to make this easy for you. Do not worry about anyone else's #'s but what you need to buy the property for to make money. If they won't approve of your offer then move on to the next offer. Here is the formula I use & it is time tested.
Take the ARV (after repair value) x .70 - cost of repairs = your MAO (maximum allowed offer)
EXAMPLE: $200,000 ARV x .70 = $140,000 - $40,000 (repairs) = $100,000 MAO.
Then put your offer in under that amount to leave room for negotiations.
Please understand you must have a reliable source to help you determine the ARV & the cost of repairs or you could be very disappointed if those #'s are off in the wrong direction.