Maximum Offer Formula and Contingency Expense

[Stephon Blackwell]

I'm currently reading the book "FLIP: How to Find, Fix and Sell Houses for Profit" by Rick Villani and Clay Davis.

They have a formula that they use to determine their maximum offer.

Here it is: After Repair Value - Improve Costs - Quiet Costs - Minimum Profit = Maximum Offer.

Should I include my Contingency Expense in this formula even when my purchase price I well below my maximum offer? Should I include the Contingency Expense in my maximum offer at all?

[Richard Warren]

That book just takes the standard rehabber’s formula and dresses it up a bit to make them sound smart.

The standard formula is as follows:
(ARV x 70%) – repairs = Maximum Purchase Price

Contingency is built into the repair cost. I generally assume 15% of my repairs as a contingency amount. If it is an older house or I expect I may run into a lot of problems I’ll pad that amount. Following that formula should net you a profit of at least 10% if your ARV and repair estimates are correct. To me ARV is the price a house can really be sold for within 30 days.

:cool: