Potential First Deal Analysis. Is this a good deal?

[Seve Chong]

Hello everyone,

I am a new investor in so cal looking to lock down my first deal. I have read much about the 70% rule of thumb for purchasing properties. Given the market that I am in, it has been difficult for me to have offers be accepted within those parameters. I have time on my hands and am okay with a lower spread to get the experience and knowledge. Is that a good mindset? I am in negotiations for this property and I am not sure how to make this a good deal for all parties. Here are the numbers that we have:

ARV: 420-430K

Repairs: ~30K

Potential Offer: 325,000 (12 points annualized)

Any help would be greatly appreciated! Thank you so much.

[Account Closed]

Seve,

Welcome to BP. This is a great real estate website. However, real estate is local so you have to take the advice and evaluate the 70% ARV, 50% rule and 2% rule with three grains of salt. Yeah, I know it's salty, but I like salty food even though I know it's not good for me.

You're in a highly competive market where even 80% ARV deals typically don't make it to the average Joe/investor. With the numbers you provided above, agents can buy and flip it themselves and make $50k instead of selling it and make a pathetic 2.5%-3% commission. Based on my observation, these deals are normally ended up being bought by well-connected investors, agents or the agent's LLC.

When foreclosures and short sales were abundant, the average Joe had a good shot of getting their foot in the door. That's no longer the case when there's hardly any distressed property on the market. Your best bet in trying to work for an experienced rehabber to learn the ins and outs of this business before going out and do it by yourself. Again, you're in a highly competitive market where deals are hard to come by now and money is abundant. I know my post may come across negative, but I just want to throw in my 2 cents based on my observation.

Good luck.