Back at it

[Jameson Sullivan]

Just Graduated from University of washington in tacoma washington  this last week and Im gonna start my broker licensing course tomorrow as a way to start getting a deeper understanding of the inner working of how a deal goes through etc.... I inherited a little bit of money that ive been waiting to put to work until I graduated and the time has finally come so Im super excited to hit the ground running.  I had always thought I just wanted a conservative buy and hold to start learning the basics of landlording etc but now Im beginning to consider trying to get a flip in because Im young and even if I lose some money worst case I still learn a whole lot of invaluable stuff. Any thoughts?

Anyways, I just wanted to post here because Ive been inactive for a little while. I would love to speak with anyone in my area who has any experience as an investor of any kind. Coffee on me any day of the week! Hope to hear from you soon,

Jameson Sullivan

[Thomas Franklin]

@Jameson Sullivan Many Investors that flip homes use the 70% Rule that says .7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV – Desired Profit – Closing Costs to Buy – Repairs – 10% of Repairs – Holdings Costs – Concessions – Realtor Fees – Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, insurance premiums, property taxes, loan payments, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 7% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.