How to Value Properties which need a MAJOR Rehab?

[Ibn Abney]

Hey BP,

Need some advice. Actively looking at multi-families (2-3 units) to rehab and eventually rent out.

Starting to feel my offers are too low as I haven't gotten much traction on 5 offers.

I of course take ARV - Estimated Repair Cost - Desired Profit - Margin of error $/%= Offer Price.

What are some other factors to consider? What are some Definitely "No-Nos" when buying a property which need rehab?

[Ritch Bonisa]

I think it's just as simple as your equation.  It's important to find a good deal up front, work hard to find out what the actual rehab costs should be.  Set aside 10-15% for unforeseen issues.  Understand the comps. 

The biggest wild card is the rehab cost.  Make sure whomever provides the rehab cost, does it with enough detail that it's clear as to what the scope is - the grade of finishes, etc.  Make sure they know what they are doing.  Know what their incentive is, and understand their process.  I hear sellers say, "I could rehab it for 50k".  Many times its true they could, because they would serve as the GC and run the job using subs, but if you have to hire a GC to manage & run it - your cost is not their cost.