Newbie 1rst deal Help!

[James Bitakis]

Hi, I am a newbie and this is my first potential deal that I am in. I randomly found a house on realtor.com, sent a request for more info in and a realtor called me, showed me a property in "B" neighborhood; i.e. nice, blue-collar working folk area, (as I don't have 1 specifically to help me find properties on the MLS yet). House listed by bank at 40K. Nice bones to the house 5 bed, 2 bath, 2 car gar. Ashburn area of Chicago SW side. It appears that there may be about 20K max needed to really make this house look good to flip. The home has some minimal mold in the basement from a roof leak (they didn't put a roof on the addition as the previous owner got sick and passed away (friendly neighbor knew the whole story and told me). Other than that the home is sound (new windows, siding, etc.). Sold Comps come in (exact type model homes, frame cape cods) at 105-135K ARV. However, none of these have the addition that was placed on this home (giving it an extra bedroom 5 vs. 4 for the comps). So we placed a offer of 41K. Realtor calls me back and says the bank has a few offers and is now going to do a "Highest and Best" offer on Friday at 1pm. My realtor says that if I want to get this house, I should offer at least 63K. She explained to me that banks who are selling their foreclosed properties all have different ways they do it. Some take the first full price offer and that's it, no more people can give them more offers. Others do what this bank does and sit on an offer to see if they get any more offers in, then after they get a few offers in they tell everyone to bring them their "highest and best" offer by this specific date. Also, the home would rent for $1300-1400/month in this area.

My question is what should my Highest and Best offer be? Also, now I see why finding owners directly (before anyone else does) is soooo much better. I will really start concentrating on that while still continuing to look at the MLS.

[Gerardo Dominguez]

@James Bitakis for flips you should use the 70% rule; see link and formula below. Your closing/holding costs and profit will come out of the remaining 30%. Or you could lower your max offer to account for your closing/holding costs. If you stay at 70% all in, or less, you also leave the option of a cash out Refi on the table. So if, worst case scenario, you can't sell it you can rent it out and put a mortgage on it to recoup your costs. So run your numbers conservatively; overestimate repairs and underestimate ARV. Make your offer based on your analysis not based on what your realtor thinks. Good luck and keep us posted!

(ARV * .70) - Rehab Costs = Max Offer

https://www.biggerpockets.com/renewsblog/2012/11/0...