New at this...need help

[Shannon Garces]

New investor and first time home buyer (looking for first flip). Found a $200,000 short sale in neighborhood that houses go for at least $400,000. What do I need to know before putting in an offer

[Kevin Andrews]

When looking at a flip, you would need to have an accurate estimate of the ARV (After Repair Value) of the house, which you can get from a realtor, or doing your own comps online. Also you need to know the repair costs of the house. How much money are you going to have to put into the house to get it to the ARV? Also you probably want to figure in a profit for yourself. With that information you can then figure out what price to offer. A commonly used rule of thumb is the 70% rule.

EXAMPLE: ARV 400000

  REPAIR COST    60000

YOUR PROFIT 30000

400000 * 70% = 280000

280000 - 60000= 220000

220000 - 30000 = 190000 (Offer Price =190000)

This is just an example, but you can plug in your own numbers and go from there

[Kevin Andrews]

Also don't forget to factor in holding costs. These are the costs of owning the property for whatever amount of time before you sell it. This includes mortgage payment taxes insurance utilities etc... If you think you can have the property ready for sale in 1 month I would probably factor in 3 to 4 months of holding costs to be conservative.  Otherwise the holding costs will eat into your profits. Good luck @Shannon Garces!

[Michael Woodward]

@Shannon Garces  Before you jump into a deal you really need to make sure you understand the process and potential pitfalls.  The approach your taking by finding a deal and then asking what to do next is a common way to start out in this business but most people don't realize that this approach is INCREDIBLY risky.  Read J. Scotts book on flipping houses here on BP and read "The Millionaire Real Estate Investor" by Gary Keller.  Reading books written by experience investors is the best way to get the right information.  Once you've spent enough time on your education, you'll know what to do next.  I often compare this business to learning to fly.  In your case, you've taxied out to the runway and are asking how to take off.  Don't do it!  Your chances of failure are very high without the right education.  

One thing I'll throw in about short sales is that sometimes they're fairly quick (1 or 2 months) and sometimes it can take over a year to get it closed.  Good luck!

[Mark Nolan]

@Shannon Garces

Welcome to the Bigger Pockets community. It is a great place to learn about real estate.

[Shannon Garces]

Thank you all so much for all of your advice. I truly appreciate it!

[Gilbert Dominguez]

You are making a very dangerous assumption and that is that this house is exactly the same as the houses that are selling for $400K in the same location. A mouse can be standing right next to an elephant but just because it is right next to the elephant the mouse is certainly not the same things as the elephant and with real estate properties can be very different even if right next to each other. 

There is allot you are not saying here and maybe that is because there is just that much you do not know and $200K is allot of money to be doing something where you just do not know everything you do need to know to properly evaluate your deal.