Initial Contact on Unlisted Fixers

[Mark Beekman]

I have my eye on several ugly, dirty, beaten-down houses (some vacant) that are not officially for sale, but I seem to be stuck as to what my initial contact with the owners should be.

On past houses, I've mailed the owners a letter saying that I was interested in purchasing their house, but any time I'd get a response they'd ask, "How much are you gonna pay me for my house?" It seems that unless I give them a number upfront, despite the fact that I don't know what the rehab would cost me, they're not going to want any more of their time wasted. Is there a certain % I should offer them upfront in my initial letter subject to inspection, repairs, etc?

For example, I'm looking at a home owned by a couple in their 80s. They live out of town and use this house for storage. Last Spring the house was condemned for filth, but has since been cleaned up. The property is obviously a burden to them and the wife is currently not in good health. Should I contact this couple and offer them, say, 75% of the ARV subject to inspection and repair costs? How do you guys make your initial contact on rehabs/fixers that aren't officially on the market?

[Will Barnard]

For rehabs the proper formula is 70% of ARV less repairs. I like Jesse's answer as it gives just a percentage and not a figure, which leads to interpretation. If that interpretation benefits you, then good, if not, then negotiate or move on.

Know your market values and you should be able to aggressively guestimate the interior repair costs (baring a complete kitchen replacement).
Make your offers based on that and adjust once you get inside.

Another strategy on this is to offer higher amounts to peak interest, then once inside, point out all the items in need of repair and work downward. When you are under contract with a seller, the seller never wants escrow to fall out (at least almost never) so making a higher offer and locking it up with CONTINGENCIES could in fact be a strategy to work for this type of investment.